Q4 2019 Earnings Call
Thank you for standing by and welcome to the cubic Corporation's fourth quarter and full year fiscal 2019 earnings conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you want me to press.
Star one on your telephone keypad, if youve fire further assistance. Please press star Zero I would now, let's say hand, the conference over to your speaker today.
Kyrstin Nielsen Vice President of Investor Relations. Thank you. Please go ahead.
Hello, everyone and thank you for joining cubic's webcast I'm joined today by Brad Feldmann, Chairman, President and Chief Executive Officer, and and Schuman, AGA Executive Vice President and Chief Financial Officer.
Before we begin I'll remind everyone that our presentation contains forward looking statements that are made pursuant to the safe Harbor provisions of the federal Securities laws. Our most recent SEC filings include risks factors that could cause the company's actual results to differ materially from our expectations. In addition, we have included non-GAAP financial.
Measures in our discussion.
Conciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix to today's presentation with that I'd like to turn the call over to Brad.
Thank you Joe Shan. Thank you everyone for joining us today.
I'll start with the show Murray.
Record performance for fiscal 2019, followed by an update on or strategic priorities, including today's announcement to exercise your option to acquire the remaining stake in two companies pick Shia in Delaware walk.
Pick she enhances ore shoot to I assure offering modelo rock is driving over entry into the public transportation mid market.
I'll turn the call overdue and Shimon, who will cover the financial results in fiscal 2020 garbage.
Turning to slide right.
Liberal record level results for shales in adjusted EBITDA in the fourth quarter capping a record year for cubic.
We're very pleased with our full one year results with sales up 24% adjusted EBIT da up 40 per schon.
An adjusted earnings per share, 43%, reflecting strong project delivery.
A major transportation contracts strong demand across the mission solutions portfolio and the impact of our recent acquisitions, which performed in line with their expectations.
With these strong results, we achieved a full year guidance.
For guidance, we have a shame constant currency and when adjusting our results for FX impacts we exceeded the midpoint for shales adjusted EBITDA and adjusted earnings per share.
Turning to slide four.
In the third quarter, we purchased a 20% stake in picks Ya.
Today, we announced that cubic has exercised the option to acquire the remaining 80%.
The valuation at $250 million reflects a 2020 EBITDA multiple of less than 11 times and is expected to be accretive to adjusted EPS, Yes in fiscal 2020.
And Shimon will discuss the expected financial impact to the acquisitions for fiscal 2020.
Pick she has been experiencing strong growth driven by customer demand.
By the fish and access to wide area motion imagery.
The next year further enables show real time battlefield cloud strategy to provide information to the edge of the battlefield.
We expect double digit adjusted EBIT da great over the next few years with superior margins and potential upsides as an enabling technology for the department of defense and Internet battlefield things artificial intelligence Strider tree.
Turning to slide five.
As we've discussed on prior calls cubic owns a minority stake in Delaware off a leading fare collection as a service and platform solution for small to mid market public transportation agencies.
Today, we announced that cubic has exercised their option to acquire the remaining 82.5%.
This acquisition accelerates next city 2.0 by enabling our immediate entry into small and midsize cities in North America.
[noise] by combining Dello rock with Cubic's Index bus solution, we can offer an integrated vehicle information operations in one account payment solution. That's a subscription based schervish any affordable price point.
Today. This market is largely unaddressed with over 70% of transit agencies in North America still dependent on cash in paper based fair products.
Having already secured more than 15 customers double arc has demonstrated that the they have a proven solution to capture significant share of upcoming procurements.
Which we anticipate being in excess of $200 million over the next five years.
Well del rock is not expected to have a meaningful financial impact in the near term at scale.
Which we would anticipate getting too in less than five years, we expect a little rock to deliver as it showed us economics with adjusted EBITDA margins north of 30%.
Turning to slide six.
We continued to deliver on our key priority of winning the customer.
Over the last several quarters, we've been investing in our IR Sars a service capabilities and recently conducted a successful first flight endurance testing of cubic's unmanned aerial vehicles.
We also signed or cooperative research and development agreement with the United States Special operations command to mature this capability.
In defense training I'd like to recognize our team a great Franklin who received an award from our customer in Japan and recognition of his outstanding support for over 10 years.
And transportation, we were collaborating with Miami Dade Transit to launch cubic interactive ahead of the Super Bowl.
Cubic interactive, there's a digital loyalty and advertising platform.
Capable of displaying advertising on any digital device from a ticket vending machine gate TV screen and on the transit agency mobile application.
Cubic interactive is at its core technology, they software as a service loyalty platform.
That enables transit agencies to incentivize utilization of public transportation and reward user loyalty.
We're very excited about this collaboration and the launch of cubic interactive a key foundational pillar for digital pivot in transportation.
Turning to slide seven.
Our major transportation projects in New York Bruce been in the Bay area are all progressing to plan.
Following a very successful public pilot we will soon begin further installation said, the New York Omni system.
We've also made significant progress with restructuring the Boston contract.
In October we were awarded a five year extension to upgrade Chicago's venturing fare collection system.
The services extension together with the system upgrade increases the value of our contract by $377 million.
Venture 3.0 will continue to position the Chicago Transit authority as the cutting edge of transit payment technology with enhancements of account management features equipment replacement and with the implementation of open architectural standards with Apiay wise to set the foundation.
And for mobility as a service.
We continue to advance our Midmarket strategy I know, we currently finalizing an agreement with San Francisco Muni, our largest customer next bus to implement the next generation system.
Lastly, we announced an agreement with Google to integrate contact was transit cards with Google play, making it fast and easy for travelers to use their mobile phones to pay for their journey.
On slide eight.
Our mission solutions team had an outstanding year and continues to see strong momentum.
In October Gator was awarded a 10 year I'd like to contract worth up to $325 million to deliver the Marines next generation Troposcatter solution.
A great win per cubic.
As the prime contractor, we will deliver a 172 systems and provide to support logistics training and field support.
Our next generation Troposcatter solution.
Provides over 200 megabits per second.
In order of magnitude improvement over the legacy system.
While reducing the size weight and power by more than 90%.
And see too I Ashar, we were selected by Sigma Defense systems.
For an idea acute contract with the ceiling valued at approximately $100 million.
To integrate its Atlas module and suite of base spam communications equipment.
As the core hardware and software.
Within segments Stingley solution for the U.S. Department of defense.
Additionally, our ongoing advancements with Cubic's multi lane communications technology.
Led to a network contract with the Air Force Research lab.
Our solution positions cubic.
To support the emerging joint area layer network, which seeks to advanced airborne networks for contested and congested airspace.
Turning to slide nine.
And defense training, we received key awards worth more than $115 billion at the end of Q4 and at the beginning in fiscal 2020.
These include key air training programs for Korea.
Cutter, Japan, and the United States Air Force.
These bookings will support near term growth and position for additional opportunities.
Additional future growth opportunities include new live virtual constructive LBC applications, leading toward training recapitalization for the United States Army and the United States Navy.
For the US Army, we were selected for the live training environment under the synthetic training environment as TV.
Which provides a new laser lists geo pairing solution.
And for soldier squad virtual trainer, which was the future squad virtual solution.
For the US Navy, we were awarded the sole shores basic ordering agreement $90 million plus I'd like you to deliver slate capabilities in support of exercise Trident Warrior UNEV why 20.
And for an early operational LBC capability at Naval Air station Fallon the home of top gun.
Turning to slide 10.
I am always proud when cubic's innovative technologies are deployed to help those and need.
After hurricane Dorian struck the Bahamas in September our mission solutions teammates provided satellite communications, Ruggedized, Io TV and radio over IP technologies to restore connectivity.
So that first responders and those eating recovery efforts could quickly access data video and voice communications.
I'm pleased to welcome to new cubic board members, Denise Divine and Carolyn flowers, who will join our board effective November 21st.
Denise is the founder and CEO of FNB Holdings, and the co founder of Rtn vital signs and brings to cubic and extensive and unique background in innovation entrepreneurship and financial leadership.
Carolyn brings to cubic extensive leadership and transportation and the in the infrastructure space currently serving as the American public Transit associations Board of directors and formally serving as the federal transportation administrator, CEO and director of public.
Transit for the Charlotte area Transit system, and the Chief operations Officer for the Los Angeles County MTN.
I'm also pleased to welcome Hillary Hagman to our leadership team as senior VP General Counsel and corporate Secretary.
Hillary the former deputy Chief see for FDIC brings a wealth of experience in corporate law on a global scale as well as Steve industry experience in government and commercial contracting and M&A.
Hillary exceeds Jim Edwards, who will be retiring next June .
Half of cubic I would like to thank Jim for his leadership throughout his 11 year tenure at cubic.
Lastly, we are launching several initiatives focused on fostering inclusive in diverse environments to strengthen our company culture generate the most innovative ideas and in turn best serve our customers. There's an honored to be recognize in the Forbes 2019 lifts.
For best employers for diversity and America's best large employers as a reflection of our ongoing efforts to create an inclusive and highly engaged work environment.
Turning to slide 11.
And then next evolution of our strategy Cubic's digital pivot seeks to enhance our growth initiatives and lays the foundation for long term value creation.
Today cubic primarily delivers innovative customer solutions with design build and operate maintain revenue streams.
Through our digital pivot cubic aims to win customers by delivered scalable products.
Based on platforms that generate recurring and as a service revenues with higher profit margins.
In the near term, our digital pivot will leverage cubic's existing software focused and cloud focused solutions.
And Cts, we're pivoting the business to a platform approach, where the platform will be available to cities of any size and deliver down and as a service basis.
Our mobile suite will be the forefront of our transportation solutions offering a fully integrated ecosystem of transportation information and payment capabilities to enrich the travel experience for both travelers and service providers.
And mission solutions, we will focus on capitalizing on our C is our cloud edge to develop multi domain platform solutions.
And next training, we will build upon our current digital platform projects, including spear Nexus and cats and leverage our core experience in game based training to expand in new commercial verticals.
We've already seen strong customer interest for those training solutions, including upcoming demonstrations for both military and commercial customers to provide a game based training digital platform.
Defense training is also sold its first three licenses for human machine performance platform spear.
We look forward to discussing our digital pivot and our next strategic growth plan goal 2025 during an Investor conference in the summer of 2020.
Next Alaskan Schuman to Describer financial results in more detail.
Thank you Brad.
Please turn to slide 12, well begin with a summary of the fourth quarter.
Sales in Q4 were 471 million, a quarterly record and up 26% year over year on a constant currency basis, driven by strong organic growth from transportation and mission solutions and the impact of our traffic and grid smart acquisitions.
The new revenue recognition standard had a favorable impact of 37.8 million largely driven by the Boston project.
Excluding Boston FC fix so thanks increased reported sales by 13.9 million.
Adjusted EBITDA for the quarter was 76.6 million also quarterly record for cubic and an increase of 59% on a constant currency basis.
This quarter FX continued to negatively impact our results, including a 7 million dollar headwind to sales and a 1.5 million dollar headwind to adjusted EBITDA and a headwind or five cents on adjusted EPS.
Free cash flow with 37 million and the fourth quarter and adjusted free cash flow, which excludes the impact of the Boston consolidation was 52 million.
Free cash flow was supported by strong shipment of Gator in a mission solutions business and improvement in working capital in the transportation business.
Our net leverage is down to less than 2.3 times, reflecting our strong Q4, adjusted EBITDA freeing up capacity for the announced acquisitions of teller rock and Vixia.
Lastly, our backlog remained strong at 3.4 billion are approximately two years revenue.
Slide 13 provide a year over year comparison of the fourth quarter results, which are mostly covered already.
I'll point out that last year's Q4 bookings included nearly 400 million from the San Francisco Bay Area Award and transportation.
Adjusted net income was 58.3 million our dollar 86 per share in the fourth quarter, 36% increase year over year on a constant currency basis.
Selecting higher adjusted EBITDA, which more than offset increases in shares outstanding and income taxes.
Moving to the full year results on slide 14.
Brad discussed we delivered record results for the fiscal year and achieved our guidance for the year.
After adjusting for FX headwinds, which is consistent with our guidance our sales adjusted EBITDA and adjusted EPS exceeded the midpoint of guidance.
Well, yes sales grew 27% on a constant currency basis, excluding the impact of the acquired businesses growth was 20% on a constant currency basis.
Adjusted EBITDA increased 44% driven by higher sales and the impact of the traffic where and grid smart acquisitions. This reflects a year over year increased 110 basis points, despite meaningful investment than the mission solutions business, which I will discuss in a moment.
Adjusted net income was 95.6 million, our Threed 13 per share in fiscal 2019 up 49% year over year, reflecting higher adjusted EBITDA and a lower effective tax rate, which more than offset increases in shares outstanding an interest expense.
Finally free cash flow was negative 36 million, an adjusted free cash flow, which excludes the impact of the Boston consolidation was positive 14.1 million, including meaningful improvement in the fourth quarter, we expect cash flow to improve in fiscal 20.
Moving to the transportation segment results on slide 15.
Sales grew 35% on a constant currency basis in Q4.
Sales growth for the full year was driven by the New York, Boston, Brisbon, and San Francisco Bay area projects, and by 74.4 million from the traffic where and grid smart acquisitions.
Adjusted EBITDA margin increase meaningfully in the fourth quarter, leading to a 210 basis point increase for the full year driven by higher volume sales mix and the impact of traffic where an grid smart.
Moving to slide 16, our mission solutions business reported another solid quarter with robust growth rounding out a very impressive year.
Sales for the full year grew 59%, reflecting strong growth across the portfolio adjusted EBITDA margin in the fourth quarter and the full year reflects incremental investments, including <unk> SAR systems accelerated investments on new franchise went and protected communications.
An additional investments in new technologies.
Turning to slide 17.
As discussed on prior calls the thier performance and cubic global defense has been impacted by the delay of international orders, leading to flat sales for the fourth quarter and full year.
Margin improvement in the fourth quarter and full year reflects strong project execution and disciplined cost management.
Defense trending is off to a good start this fiscal year with strong recent bookings, including key international Air training programs, which should lead to growth in fiscal 2020 .
Turning to slide 18 for fiscal year 2020 , we expect sales in the range of 1.58 billion to 1.64 billion, including approximately 40 million of sales from the expected acquisitions up ixia and other rock.
Before factoring in growth from the acquisitions. This performance is inline with our board 2020 target.
Adjusted EBITDA, we expect a range of 170 million 290 million.
At the midpoint of 180 million, reflecting our continued focus on margin improvement and continued investments in innovation.
Our EBITDA guidance includes 15 million Trump ixia and della rock.
We expect adjusted EPS in the range of $3.10 to $3.70, including a 20 cents combined contribution from Vixia and Deller rock.
Lastly, our guidance assumes a defense budget is reached no later than mid fiscal Q2.
We expect Q1, adjusted EBITDA to be lower than Q1 fiscal 2019 impacted by a onetime accelerated investment charge in the quarter for the initial troposcatter order and timing impacts from orders and respective deliveries due to the continuing resolution.
Now I'll turn the call back over to Brad.
Thank you in Sherman.
Turning to slide 19.
In summary, we delivered record financial results in Q4 in fiscal year 2019, and we expect to deliver another strong year in fiscal 2020.
Cts continues to leave the market in fare collection and is further advancing next city through significant progress with our mobile applications advancements developing or mid market solution and strong performance from our intelligent traffic management acquisitions.
Our acquisition strategy in organic investments in C. Four I us are paying off with outstanding growth in key franchise program wins defense training is positioned for growth with our recent wins and strong growth potential across several opportunities for lied virtual and constructive solution.
Yes.
As we enter fiscal year 2020.
The final year over five years strategic plan I am proud of what our teams have accomplished together and remain very optimistic about cubics future.
Now let's proceed to the Q in a session.
To ask a question. Please press star one on your telephone keypad.
First question comes from Kim with two teams of Needham and company. Please go ahead. Your line is open.
Thank you good afternoon.
Just a question on the a big the guidance for Q1.
The adjusted EBITDA being down year over year I'm wondering can you can you maybe size the investment as it relates to a troposcatter.
Yeah. The initial claim that we got will have a forward loss or investment just over $2 million about two and a half million dollars.
And after that all the orders that will be getting for fraud. The idea that Brad mentioned off about 325 million will be highly profitable.
Got it and then.
Backlog looks like the backlog in CMS.
Sequentially was it was down a fair amount and I'm just wondering I know you've got some I think the sounds like you have a pretty healthy pipeline.
But can you talk a little bit about how you see that backlog being replenished for CMS and more broadly maybe if you could.
Talk about both CMS and CGD business.
As we think about the seasonal pattern of that business in fiscal 20 will it be as backend loaded as we saw last year.
Jim This is Brad how are you doing hi, Brad good.
So.
A lot of the backlog is down because there are a revenue was way up so they they shipped out an awful lot. This year and were in CMS and we're very proud of the growth.
Bill.
You know they have programs of record and when we get a budget that those orders will come in and we intend to ship them. This year and it'll be somewhat back loaded or again as well in the defense training business you might note that we.
Just after the fiscal year booked I think about a $115 million of new work and so that that will is less susceptible to shipment based revenue calculations its cost on cost and so they will be less backend loaded.
And we'll grow throughout the remainder of the year both of the businesses were very excited about the possibility and cubic mission solutions as you probably noticed we have invested quite a bit in R&D, there and the pipeline has very very robust.
And the defense training business were very shall be about that as well I think we talked about that returning to growth and with these orders and other things that they've won a we're very optimistic about growth going forward.
One final question I'll jump back into queue. I think you gave the a the revenue contribution for traffic where in grid smart for the full fiscal year I may have missed it but did you provide the contribution for the fiscal fourth quarter.
Oh, we did not part for the full year ever about 18 million and adjusted EBITDA traffic, we're in great Smart.
The revenue contribution I was looking for.
That would see adjusted EBIT da Yep, Okay. The revenue.
The revenue number [laughter].
Jim I think we will get back to what the revenue I know that's fine that's why we could we could circle back offline. Thank you.
Your next question comes from Jon Raviv Citi. Please go ahead your line is open.
Hey, good afternoon, one quick clarification on the free cash flow action on I think you mentioned that it should be better enough why 20 years clarifying on what measure the adjusted versus not adjusted and then also can you comment as to how much of that includes some monetization of receivables plays which I think you started doing in recent quarters. Thank you.
Hi, John how you doing.
Just on there.
Free cash flow I would look at the number of adjusted free cash flow because that's the real cash flow.
Because the Boston Gosh, we receive from a free cash flow perspective, we cannot countered, but even oh, we eliminate that.
And we count.
Adjusted free cash flow, because that's non recourse debt to cubic on it shouldn't be really considered as free cash flow. So I would focus on the free cash flow number and that would be the improve number the receivables, we do factor a little but and we'd do that based more on a decision off interest cost the cost for factoring our receivables.
It is lower than the cost of our revolver and would be benefit from that and reduce our interest costs and managed gosh shop. So it's really a decision off on based on that.
Heading into next year, the the improvements you're come from the underlying as well as potentially some.
Continued factoring.
The factoring would be probably in line with a what we factor right now, but I wouldn't be significantly different but ah. So it's really underlying cash performance improvement.
Gotcha I appreciate that clarification, and then sort of looking at the fiscal 20.
Appreciate the a you know achieving goal 2020 .
Can you comment first on the organic growth I mean pretty pretty good number and definitely 19, but I try to get our heads around me with the implied organic growth is next year. It looks like a 3% to 7% excluding dollars rock and picks and maybe less if you exclude.
Chris Martin traffic, where he just give us some sense of how you're looking at organic growth enough lightweight. Please.
Our organic growth, though if you referred to eliminate the two acquisitions, we just announced wouldn't be about 5% and that's coming off very strong.
Comparable so 2019, we had robust growth and all our businesses. If you look at our transportation business grew 30% topline.
If you look at Miss Mission solutions, It grew 59% topline.
And a you know we're operating under a CR right now so there are some variability because of that so about based on data were given guidance of about 5% organic.
Okay and then similar question on margin I think if I exclude the.
The acquisitions the lower end of that range is about 10, 10.1% you didnt, 9.8% enough. When 19, what are some moving pieces going forward just as you know what we have assumed where you know various production.
Programs picking up I suppose offset by some of investments that he was going to give a sense for why margin might not be better and also in the context of adult 2020, which I think sort of pointed to 11% to 12.5% margin.
In 2020, thank you.
So let's use the midpoint numbers, so with big see on Delta Rockwood.
<unk> percent and without them, we are not 10 point.
[laughter].
And our and technology road map towards digital footprint. So we're absorbing those investments.
Probably in the $15 million range that are leading to continued growth and when you talk look at our last like we're talking about double digit growth going into 2025.
That's driven by investments that are we starting to make and our digital pivot and a little bit the bride teased about during this call and more to come on dot during our Investor day over the summer, we think that digital pivot as significant in the sense that all of our businesses have a lot of data and we're doing some expense.
Fermentation as we speak with customers to create digital platforms, I chatted, a little bit about that.
And so were definitely increasing our R&D investment.
To continue to grow the company had a robust.
Rate going forward and and so that's contributing some to.
Some to the margin.
Hi, Thanks, I'll hop back in the Q.
Your next question comes from Mark Strouse of JP Morgan. Please go ahead. Your line is open.
Yeah, Hey, guys. Thanks for taking my questions Hello, So appreciate our color on the.
Hey, Brian .
I appreciate all the color on the the organic versus inorganic numbers here just wanted to go back to the comments around grids Martin traffic, where I think you said about 18 million in EBITDA.
Can you talk about that versus your expectations are those acquisitions in line with your original expectations and I I understand you're making investments in R&D. So maybe that's kind of the.
The bridge, but that number seems just a bit like to me. So just wanted to a bit more color there. Thank you.
Yeah.
When we provided was 20 million for the year, where a couple million light that 18, but that was basically one order slipped out of the fiscal year International order, but show will come in relatively soon.
Bear in pilot with that customer and it's just a country, where it takes a little bit of time to get that orders and besides stock we've accelerated some investments up since the mid ER Doc positions, both in driving synergies across the portfolio in terms of sales and also international sale than we've had some success out there so.
Overall the businesses saw both are performing well to have a positive adjusted Dps contributions to our business and we're very happy with their performance.
Okay. Thanks instrument.
And then I believe you said Chicago the extension closed in October .
Is it right to assume that that is not included in the backlog that you just reported.
Not it's not in backlog, but we're very excited about.
Getting that upgrade in Chicago in it.
Points to our.
Create money or money value creation thesis of annuities with customers and getting upgrades and the like and so we're very proud of that in how we can serve the C.T.J.
Okay, and then just real quick lastly, a lot of moving parts below the line with a with the JV and whatnot, but.
Can you just help us tie between the EBITDA guidance and the the EPS guidance as far as your tax rate Noncontrolling interest you know those kind of thanks.
Yeah. So when you really start thinking off going from this year's saw numbers to next year from below the line going from adjusted EBITDA. Adjusted net income obviously were going to have higher interest expense given the fact that they're buying big see I can tell a rock using debt.
Our effective tax rate. This year was 21% next year, probably are forecasting it to be I've got a couple of points higher.
And so that would be a little bit of impact from a higher tax rate.
So those are the two big drivers saw a additionally, depreciation as you saw in our slide 5 million higher for the versus last year.
Okay. That's it for me thank you very much.
Your next question comes from Ken Herbert of Canaccord Genuity. Please go ahead. Your line is open.
Hi, good afternoon, right and I'm sure mining Kierston.
Hi, Ken again.
Hey, Brad I just wanted to first start on on 'em PMTA in the work in New York City sounds like you you've completed phase one with the launch there I know you're up against a fairly aggressive schedule can you just talk about.
From two angles, one you know the next upcoming milestones and how that project is going but then second you know the buffer you've got in sort of where you stand in terms of.
Of profitability on that project relative to plan and and the implications of that or whats implied in fiscal 20.
Sure. So as you pointed out correctly, we did beneficial use one earlier in the air and we're very proud of that and we're we're rolling into beneficial use to and over the next year, we'll be rolling out our equipment.
Through all the stations.
Within that the MTR has cognisance over so we're on track we're moving out then.
We'll expand throughout that whole network, what I would say you know as you know we don't.
Give a you know profit by contract or anything like that but what I would say just to put color on it you know we have the lions share of risk behind us and so I would expect us some improvements oh, so that's what I would expect.
Okay. That's helpful.
Not so much oh profitability on the specific contract, but really the risk relative to your initial assumptions and buffer you may have and and.
Just to ensure that program, both New York and Boston as well I guess are tracking to plan or if there's anything incremental that's come up that would be a particular headwind to your goals in fiscal 2000 on those programs.
Yeah, I would say some statements broadly can first off I think.
We have the majority of the risk behind us as you can see we're rolling stuff out in New York and as you remember last year, we're fortunate to win in Boston and then British spend in San Francisco and you know that the systems build upon one another there's high reuse and so.
We've done a lot of the heavy lifting already in New York. So I would expect a improvements in the business as we go forward broadly specifically regarding Boston, where a that a customer has wanted more equipment and where in the midst of restructuring that and.
You know, we're very close to.
You know getting done a you might remember, it's a little complicated with financing partners and the like so I'm. Even after you know we sort of shake hands than we have to go get that financing.
All accomplished I would expect you know next quarter to maybe at a leak a little bit into the next quarter. These financing things are always a challenging and fun, but.
Things are all on track Ken.
Okay, that's great and if I could I just wanted to ask a final question on the fiscal 2000 guidance in a slightly different way.
Is there anything else besides the digital pivot and investments around that you've called out as we try and parse out the sort of implied margins by various segments Tonight and I don't expect you to maybe get down to that level. Today like you had any initial 20 guidance. Your goal 20, but I'm just wondering.
If that digital pivot in those investments are clickable more true sounds like more to CMS and transportation.
Maybe training as well, but how do we think about those from a margin standpoint, and anything else you'd call out that's at least initially pushing you to the lower end of the sort of the initial 20 guidance you provided.
Yes, so the reason.
It's slower as we're investing more in the business. So I think I think that's absolutely correct.
As you know the R&D has.
As increased significantly and we've seen very good growth as a result, you probably remember when I started this about five years ago. It was in the 15 million dollar band and now we're in the 50 million dollar band and continuing to invest within the company, you'll probably notice in the in the K.
There's a bunch information about that new information and so yeah, we are investing more.
You know in terms of a is it in this business or that business I think I think a lot of that.
About half of it is going to be in Cts business and the rest is kind of equally split in the two defense businesses, having said all that what I would say is that the margins I expect the margins to continue to improve and the reason is Ah.
Something we just talked about a second ago is I think a lot of the risk of delivering you know the shoe billion dollars a backlog of those four big contract wins in Cts, we we've slate a lot of that risk already.
Great. Thanks, a lot Brett.
Yes.
Your next question comes from Michael Ciarmoli of Suntrust. Please go ahead, Sir your line is helping.
Hey, good afternoon or aren't good evening guys. Thanks for taking the questions.
Hi, Michael.
How are you just staying on the 2020, so you've got the picks yet in del rock.
Contributing 15 million of EBITDA I mean, that's.
It's actually high margin at that.
That could run rate for these businesses that we can think of going forward or is there.
Any any sort of onetime items in that contribution occurring there there.
These are.
The these are higher margin businesses.
The Pixie a business is a is a software licensing subscription pays kind of business and so has much higher margins.
The double rock businesses pointed out in the in the script.
Is there our entry into the mid market in a serious way and our intent is to team.
Cricket cities and get a a piece of each ticked up and so it'll be a much more annuity recurring and so as you scale that and you add more cities.
Cost to add an additional city is small compared to the the scaling of the revenue so.
I mentioned in the script that we would expect you know north of 30% once we get going but it'll it'll take us a couple of years to get the kind of penetration that we think a to get that kind of scale. So both both of those business will achieve much higher margins than the exist.
Getting cubic portfolio.
Got it and then just on the S that bridge.
For for fiscal 20, I mean, you obviously just covered some of the interest expense tax in investment, but but can you give us more though maybe the puts and takes the what brings us down to the low end to that guidance. What are what are the risk factors in there does that I know youve sort of contemplated that continuing resolution and maybe pathogen.
Your second quarter, but maybe a little bit more color there on what could bring that sounds a little low and door.
Converts in high end.
Yes, so the biggest ER variability in our earnings is timing off all getting some of the order, especially in our CMS business and getting the shipments out.
You know our business as backend loaded.
And so while we have good visibility on what our customers will buy.
The CR puts pressure on getting stuff later in the year and getting it shipped out so I would say the biggest risk factor for us in terms off a the high end or the low end is getting shipments out.
Based on when we get the orders from our customers up.
In our transport business saw a significant part of our revenue is already in backlog brides already talked about execution is going well on our projects a significant amount of de risking have happened on the projects with DARPA beneficial use one milestone in our new New York project. So we continue to do well in our C.D.S. business.
And so it really comes down to timing off getting orders and shipment again, let me just mentioned on the orders and the timing and so forth.
All of this stuff or is program of record stuff. It's all funded in the President's budget and we have very very high visibility. What we don't know is when the Congress and the prices that will come together and signed a defense appropriations Bill we don't know that.
Exactly by any means but so none of the orders and the revenue itself is at risk, it's a timing thing.
I understand but is there if we see a full year continuing resolution or if that's correct onto that introduced more downside you've got to capture data. So what we what we what we've said in Sherman said in and giving the guidance was one of our assumptions was that in the Czech and.
Corridor, that's what it's based on so if it goes a third quarter fourth quarter than that creates headwinds for us.
Got it okay.
Okay, and then maybe just last one can you give us an update on no, but tronics and kind of whats been happening there on the hardware side any new incremental opportunities you're seeing with that deal.
Yeah, It's a matter of fact, the board and myself have been that Nuvo Tronics way just got back.
Last night, we were very proud to show that off.
You know just just as a reminder, nuvo tronics ER.
Makes the best RF components in the World. There 100 times the size, so very very small they have better electrical characteristics and so given that they can be produce a much better parts and what they're trying to do is move up the value chain go you know from parts to.
Subsystems to systems any anywhere.
And frequency range is above say K. you band. So you know 30 gigahertz, if you will.
These parts are better than anybody in the world by a lot and so applications, where this technology can be used star isn't the satellite market. Then we're supporting customers today, we certainly see an expansion there and the satellite market simply because.
As a as we know there's going to be a lot of new constellations, Leo and Mayo and so forth and we have lots of customers that are interested in that also in a in the Fiveg arena.
Were working with the five she infrastructure providers, providing them parts and we're actually in in their designs and.
These very high frequencies will need a lot of filters and.
So we see tremendous growth there we see potential.
And Hypersonics were up about providing communications and and Hypersonics and then as you might remember.
When all the things I'm speaking about our our short of gravy [laughter], there's a sort of a.
Vertical integration opportunity.
Within our Gator product of.
Having new feed that you know is actually was at and so.
We see tremendous upside Inuvo tronics and would expect it to scale and you know throw off lots of cash.
Thanks, guys very helpful.
Your next question comes from Lilly Palmer of William Blair. Please go ahead, Sir your line is open.
Good afternoon, Brad onto them on and Kirsten.
Hi, Louie.
Hello.
Operator appears to be doing well with the program of record.
Investors, though are interested in the progress of your other recently acquired assets for mission solutions I was wondering for 2019, if you could break out the organic growth for mission solutions.
Excluding gainer just to get some sort of progress on how Deepak Nuvo tronics and so where a lot. So I'll say brought that offerings are doing.
I will say broad statements everything grew quite a bit.
So the de tech business.
As you.
Read in our script and slides.
One of the future command post for the Army the future command post for the Marine Corps and the future command post for SOCOM.
And so that's like all the ground forces in the U.S. and those projects started out small and then they expand and so we've seen some of that revenue, but they had very good growth.
M.D. Tech in fact, they had record year.
Terrible objects continues to grow at a very high rate I think we advertised in the past that all of these acquisitions had grown more than 30% and that continues.
To do there.
Well also with regard to the data linking capability you know the common datalink capability.
We're very happy that we won a number of franchise programs. This year. So we run on the F. 35, we won on the M.
M Q2 5, we won MH 60, and we want a or anti Chan of waveform, which we call booms flying all of that will lead to a great growth going forward and we would just had a little so far but that but that grew as well so all of the bill.
Businesses that we've been fortunate to buy.
Within CMS are doing really well and are certainly accretive for our shareholders.
Great and onto them on you mentioned that.
Global Defense Division is off to a strong start for fiscal 2020. After a very challenging 2019 should we expect.
The cubic global Defense division to achieve positive growth this year.
Yes.
Huh.
You know we started off late Q4 early this quarter or have already with over 115 million of bookings saw in our air training business and a lot of the investments that we've been talking about and international orders that will lead to growth in the business and this business is back on the growth trajectory and literally just to add to that.
Matt.
They won.
Some significant awards.
That will lead to even further growth they started out very small so.
Might remember.
We did this technology demonstration for live virtual constructive in the air we entered awarded a navy contract to continue that so of that significant we won a live other transactional authority with PEO STRI for the future of miles. So we won that that will.
Do some experimentation and my prediction is that will lead to the future of miles and I might point out since we won the miles gear or <unk> or contract. Many many years ago.
When we were fortunate to beat a very large company.
We've all we only shipped half a billion dollar half a billion pieces of cat over you know a number a number of years and then we also won a OTI a other transactional authority for the future of.
Our engagement skills trainer for squats, and so I would expect that to grow as well so not only the international the $115 million said came men, but some very significant.
Sorta kernel contracts that are going to grow.
Okay and another one for me the M.T.A. in New York City awarded trends for a contract for congestion pricing what role do you expect to play for congestion pricing younger so what they potentially other.
Yeah. So what the M.T.K. did was say broke the the problem up into pieces. The first part that they awarded was an infrastructure piece and quite frankly, we didnt fit that the second piece. It has to do it the back office and boy it were keen on that.
Louis and are all land.
Sounds good and run one final one that you know more I think it's more abroad, but one of the virtues of your transportation contract is that you have.
Long term visibility assuming that you hit your your milestones on time and I was wondering.
If we.
Very low eight way low eight we've never gone home just to put in perspective.
I was wondering if you said group your recent big for contract together and provide approximately like how much in total revenue. They represented for 2019 and how much the big four are expected to grow.
So over the next.
Several years.
We we typically don't provide contract level detailed saab.
So group, then, but what boat Louie what I would say broadly right is I think it will grow next year and thereafter, if you look at the phases.
Where this stuff is done a lot of revenue of course is when you're producing equipment and installing equipment.
And so we're in that phase you know if you earlier on in the call I think can asked me about how is going in New York and I said, you know we done be one which was a few of the lines and now we're going to like do them. All so you would expect in doing them all and so all of the contracts are.
No headed towards.
You know the build phase over the next couple of years, So I would expect that to ramp.
Okay.
Sounds good totally understand thank you got.
Thank you.
Your last question comes from my line of Jon Raviv of Citi. Please go ahead. Your line is open.
Thanks, so much for taking the follow up guys.
Just on the the 5% organic growth and roughly 20 can give some color by segment I mean, the G. D is pivoting to growth Cts sounds like there's a lot of growth with the ramps and whatnot tourism sand, that's going to have really tough comp, but could we see negative in any of the segments.
And 20, there's no negative all of them should see some growth.
Okay. Thank you and then on the just on the other digital pivot on can you just provide some perspective on the payoff for these investments, especially at CMS. We certainly appreciate that the supports growth but.
We will kind of when guys. So the so think of sales growth for some margin expansion from that digital to that.
Yes, so we haven't we haven't given that at all and what I did say on the call is we would have an investor day in the summer.
And we'll we'll roll that out with a lot more detail, but I wouldnt, but what I would say broadly is we're looking at hundreds of billions of dollars in revenue over time with different revenue models or excuse me different business models that are much more profitable I would say that broad.
Thirdly.
Thanks, so much Brent.
You're welcome.
There are no further questions at this time I will turn the call over into Brad Feldmann for closing remarks.
[noise] [noise], we had a great here in our and are on track for continued growth in fiscal 2020 and beyond.
I'd like to thank my outstanding teammates for their focus on winning the trust of our customers.
Thank you all for your partnership and for joining us today.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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