Q3 2020 Cubic Corp Earnings Call
Ladies and gentlemen, welcome to cubic Corporation's third quarter fiscal year 2020 earnings conference call.
At this time all participants are in a listen only mode.
After the speakers presentation, there will be a question and answer session.
To ask a question during the session you'll need to press star one on your telephone.
Please be advised that today's conference is being recorded.
Now I would like to turn the call over the Kierston Nielsen Vice President of Investor Relations you may begin.
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 began a friendly reminder, that our presentation contains forward looking statements that are made pursuant to the safe Harbor provisions.
Of the federal Securities laws.
Most recent Sep 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 reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix to do.
Today's presentation with that I'll turn the call over to Brad.
Thank you care Shannon.
Welcome everyone and thank you for joining us today.
Please turn to slide three.
Before we discuss the quarterly results I want to comment on reaching the bench.
The killings from George Floyd, Briana, Taylor, and shad like many others or tragic reminders of the injustice that continues to threaten the black community here in the United States.
Recently, we came together as an organization virtually to educate each other and support our fellow Q.
We are hurting celebration one Josh.
Where employee resource group of Black employees sled multiple sessions with all of cubic facilitating open dialogue to discuss reaching a bench share personal experiences and discuss potential actions towards rush into qualities.
Additionally, we have launched a new training course for all employees to help us identify and mitigate unconscious spot.
These are small shops, and there's more to be done.
We are committed to listening.
Learning and improving together.
As I've said before diversity fuels innovation, which is the wife blood of our company.
Cubic is committed to an inclusive workplace, where everyone is respected.
Imported and powered and has the opportunity to contribute to innovation.
Now, let me briefly comment on the current economic environment.
Since the onset of cobot, 19, pandemic, helping shape Dearborn employees and customers has been our top priority.
At the same time, we focused on ensuring business continuity and effectively managing expenses during this uncertain period.
We believe that are resilient corporate culture, and adoptable experienced teams have enabled us to effectively address these priorities and our results this quarter demonstrate that.
At the same time, we have not taken out where are you off the future and our strategic priorities.
Specifically building technology, driven market, leading businesses and we believe the long term favorable industry dynamics and bold transportation in defense remain intact.
Lastly, well, we continue to face the near term dynamics related to cope with 19, we believe cubic remains well positioned to drive growth improved cash flow and reduce leverage.
Please turn to slide four.
Last year, we launched our diversity and inclusion strategy with ambitious goals across three pillars first strategy and leadership second town with life cycle and third workforce engagement.
This launch we also established several global employee resource Scrooge yard cheese, or a proven catalysts to building an inclusive culture.
We will continue to expand this important initiative and in support of our strategy and commitment to diversity and inclusion we're actively seeking to increase our diverse employee population.
Although cubic there's relatively early on this journey I am proud of our team's progress, which is driving innovation recruiting talent development and corporate responsibility initiatives that benefit our employees customers and shareholders.
As cobot 19 per shifts we continue to proactively monitor that health and wellbeing of our employees globally and maintained robust safety protocols.
Cubic's businesses are deemed essential and we believed that our operations and supply chain remain fully prepared to meet our customer commitments.
While our transit agency customers are experiencing unprecedented challenges, we believe the industry will continue to adopt and evolve and we are taking an active role in elevating and advancing the future of transportation.
And the last several weeks, we met with all our major transit customers. She goes to discuss how we can continue to support their immediate needs and help make transportation network shape up more efficient and more resilient in the long term.
Turning to slide five Oh.
I'll provide an overview of our performance for the third quarter and in Schuman will discuss the financial results in more detail.
Third quarter results were in line with our expectations, ensuring we announced the cubic and the Massachusetts based transportation authority completed the financial close of the contract reset.
A key milestone for our continued delivery of the M. B T. H next generation fair payment system.
Our book to bills ratio for both the third quarter and year to date was 1.3 and our backlog remains very strong at $3.7 billion up 10% since the beginning of the fiscal year.
Third quarter sales were $350.4 million, a decrease of 8% year on year as a result of impacts related to cobot 19, and the timing of shipments in mission solutions, which we continue to expect to be weighed into the fourth quarter.
This expectation is supported by recent bookings and our current outlook for additional Q4 orders and shipments.
Adjusted EBITDA was $38.2 million in the third quarter, an increase of 25% year on year, reflecting strong performance in transportation, including the reset of our Boston contract and company wide cost management.
We estimated that cobot 19 impacted sales by approximately $41 million and adjusted EBIT da by approximately $14 million, including delayed awards project slowdowns and lower trends are ridership.
Adjusted free cash flow for the quarter was strong at $43.8 billion, including the benefit of the Boston Reshot.
We continued to prioritize reducing leverage and pay down $54 million of net debt in the third quarter.
Overall, we delivered on what we said we were going to do despite the challenging economic environment.
Lastly, well transit ridership levels have improved from the lows are the pandemic it remains significantly below normal levels with uncertainty surrounding the pace and tightening of recovery.
As a result, many of our transit agency customers continue to experience a decline in their fair and unfair revenue range. We continue to believe that cubic's large backlog is largely insulated from the impact should cobot 19 due to the critical service a fair collection.
Additionally contract was account base fare collection is critical to support the removal of cash and minimize physical touch points and a transportation fair payment environment. However, capital projects that have not yet been awarded are likely to being delayed until the funding situation.
And improves for customers.
Well transit ridership is showing a slow recovery vehicle traffic has returned quickly and many cities are concerned about congestion.
Cubic's best in class intelligent traffic solutions, we enable affective in shape control of intersections and allow advanced optimization of traffic flows so while our pipeline in urban revenue management from transit agencies May move to go right. We believe there are upsides.
And potentially accelerated demand for cubic's market, leading high margin traffic management products.
Turning to slide six.
Let me provide an update on our strategic priorities starting with transportation.
In New York installation work on the Omni project resumed at the beginning of May.
After a six week pause student academic.
The new contactless payments system is now installed at more than half of all New York City subway stations.
This new system is more important than ever due to the critical need to remove physical touch points within our public transportation networks.
We remain on track to deploy the omni returns at every subway station in on all New York City buses by the end of the year next the San Francisco Beauty Board approved or contract for next spots are cloud based software as a service solution that provides real time passenger information.
With this next generation system, we will implement new features over the next couple of years, including real time to rival information for buses and trains and a display of alternate routes.
The new informational display will show bus capacity, allowing passengers to decide whether to wait for the next deriving bus.
Additionally, we've made good progress in Los Angeles, and DC with our mobile apps and virtual card functionality, including initial pilots with partners and customers in Chicago. The pilot was extended due to the cold at 19 locked down but is now in testing page.
While our large transportation projects remain on schedule, we continue see broader impacts in disruptions in transportation and we are experiencing about a three to nine month delay from previous project projections on the timings of New awards. However, we continue to advance keepers.
Roots in North America, we have submitted proposals, including an account based back office and mobile upgrade to Vancouver, and an open payment upgrade to Atlanta in Washington, We urge rushing a bus open payments proposal after New York State, we're responding to various tolling.
RFP age and Toronto, we participated in the Metro links industry day presentations and are now awaiting the RFP in Asia Pacific. We are addressing your account based open payment system proposals for should make camber and New Zealand as well as a new master plan.
Form in Queensland, and Europe, we're progressing proposals in Dublin as well as several in the UK and an opportunity in more short Poland.
These examples total more than $1 billion and near term pipeline opportunities.
Turning to mission solutions, our investments in innovation continue to drive strategic wins in this business.
In July we were awarded a $38 million prime contractor prototype and demonstrate the United States airports as high capacity backbone system.
HCP is a critical enabler for the United States Air Force's joint all domain command and control capability.
This win is a testament to our strategy and investments in technology, such as our Halo software defined antenna.
Our solution integrates capabilities across our protected communications and seek to why it's our portfolio.
And we expect this to drive growth overtime, as we execute and transition to platforms.
Additionally, mission solutions, one and I'd like to contract for the and I, just say to air Force's advanced Battle management system.
Providing us with the strategic Avenue to continue positioning our military Aiotv solutions to intelligently connect distributed sensors in effect or change in complex operating environments.
Lastly, key order activity in the third quarter included orders for Gator and supported the United States Army two to see two program orders for our command Poached computing solutions and a follow on order to deliver shark wing systems for U.S. Navy aircraft carriers.
Turning to the training business in July cubic was awarded the highly competitive surface training immersive gaming and simulations program known as Stags.
This is a single vendor five year I'd like to contract worth $99 million and under this program, we will provide a new virtual environment training system for the United States Navy.
We are pursuing another opportunity with the U.S. Navy and supportive its fiscal year 2021.
Ready relevant learning contact conversion program and supported the shale or 2025 program with the overarching goal of improving sailors transfer of training to the operational work environment.
In addition, we continued to advance our initiative to deliver high fidelity multi domain training and bar image. Most recently, we successfully completed the last use your assessment.
For the soldier squad virtual trainer and are scheduled for a final use your assessment for the life for Sean forged training capability.
Both programs are key initiatives under the United States Army synthetic training environment program. Additionally, we have entered the final phase of the United States Marine Corps Fortune Unforced next OTN with phase three demonstrations taking place until the end of August with.
This phase three demonstration a service contract will be awarded to deliver new combat training products and services for the United States Marine Corps.
Turning to slide seven.
I'd like to share a few more details on the HCB contract and why it is strategically important.
First we won a tier one competition at the prime contractor level for capability that the airports considers essential.
To achieve its future joint all domain she to vision.
HCP is a critical element of the joint Aereo layer network and our innovations will ensure aerial layer network availability and resiliency in all environments and accelerate data delivery for increased decision speed.
There is a good production tail and we expect this win will help us capture a portion of that they've estimated market opportunity of more than $4 billion over the next 10 years.
Second we use an open system strategy to integrate acquired capabilities and new solutions from R&D pipeline to provide an outstanding solution for our customer.
This included our recently acquired Newbuild Tronics business Teralogics capabilities and successful innovations for software definable antennas and advance tactical data links we will prototype and demonstrate the entire air and ground system, including networking and active cyber.
Defense.
Turning to slide eight for a discussion on transportation.
As a reminder, in January we announced a partnership with move it to develop mobile solutions with industry, leading user experience features.
This partnership enables the integration of cubic and move its market, leading complimentary technologies, while creating sales opportunities within cubic and move its existing installed base as well as new markets.
The extended partnership will leverage cubic innovative mobile payment and fare collection technologies as well as move its robust multi modal journey planner to create a unique platform that offers travelers a seamless and frictionless mobile experience.
The solution includes planning ticketing and fare collection and step by step journey guidance integrated with real time arrival and departure information digital engagement in incentives and operator intelligence.
We are targeting the end of 2020 for the platforms first release, which will be available to cubic's existing customers have touched pass which came with our acquisition of della rock.
This release will combine move its journey planning with Cubic's multi agency cloud based fair payment solution and additional features will roll out in 2021.
And then near term we expect this markedly improved mobile experience to drive more users and transaction feeds.
Overtime, we expect this feature set of our enhanced offerings will also lead to more agency wins and create value for mobility as a service offerings I'm very pleased with our team's progress toward our goal of creating an immersive environment, where people can look book.
And pay for multi modal journeys all in one out.
Let's turn to slide nine.
We had been working closely with our transportation customers globally to understand their current pain points and to accelerate initiatives to help them rebound from the pandemic.
With a key focus on building trust in transit.
Trust in transit is strongly influenced by providing a touchless experience for travelers and staff and through timely and effective communication to influence travel behavior.
As an example, our virtual ticket agent technology provides multi lingual customer service, reducing the need for close face to face proximity contact between transit staff and customers.
It is a multichannel service delivered through our ticketing kiosks and new users smartphone.
Another example, we are working with move it to provide a demand and yield management system that allows travelers to check congestion levels prior to leaving home and to collect valuable insights on current and projected demand in the system.
We also expect to see increased interest in congestion management technology, including the transport management platform traffic, where and grid smart.
For example.
Grid smarts artificial intelligence camera can be used to automate pedestrian crossings to protect vulnerable road users, while optimizing traffic flow.
This becomes critically important with more people embracing active mobility, such as walking and cycling and the forecast that road traffic will return at a faster rate than transits rebound.
Turning to slide 10.
Cubic has a long standing history of commitment to corporate social responsibility.
Now we are taking steps to further accelerate our E.S.G. journey and become best in class in or industries.
As I discussed earlier, we rolled out or diversity and inclusion strategy last year.
In 2020, we became a signatory to the UN global compact and made a commitment to align with the UN GC sustainable development goals.
Additionally, we conducted a materiality assessment to help guide or strategy and determine which corporate responsibility topics matter most to cubic and our stakeholders.
We're building on the foundation.
At all our businesses to labor market, leading innovations that help promote sustainability in our industries.
And transportation, we help cities reduce congestion enhance safety and improve the way we moved throughout cities.
In Q4, I as Saar, we improved mission effectiveness by delivering superior performance, while reducing physical footprint.
And related to C.G.D., ARD wide virtual and constructive training solutions improved proficiency and readiness, enabling a safer world.
I look forward to keeping you updated on our progress and as always we welcome shareholder input on this important initiative.
Now I'll ask and schuman to discuss the financial results.
Thank you, Brad and Hello, everyone.
Please turn to slide 11 to cover the third quarter financial results.
As Brad mentioned, we executed well this quarter and the results were in line, but our expectation.
Kinks grew 40% to 453 million driven by the contract amendment with a Boston customer, including additional scope on both the design build and services portion of the project.
Sales in the third quarter with 350 million down 8% as reported a 9% on an organic basis year over year, reflecting the timing of shipments and mission solutions and estimated impacts related to covert 19, as a result of delayed awards project pauses and slow down and low.
Youre trying to try to ship revenue.
Adjusted EBITDA was 38.2 million up 25% year over year, reflecting growth in transportation and defense training and benefits from the previously announced companywide cost management initiative.
This was partially offset by a decline in mission solutions.
We estimate that the unfavorable impacts related to the Corbett 19 pandemic totaled up to 41 million plus sales and up to 14 million for adjusted EBITDA in the third quarter.
Adjusted earnings per share was 74 cents up 12% year over year, reflecting higher adjusted EBITDA, partially offset by higher taxes depreciation expense.
Additionally, we delivered strong adjusted free cash flow 44 million in the third quarter driven by a payment on the Boston contract with the financial close and the milestone payment on the New York on tract.
As a reminder, last years adjusted free cash flow included 45 million net proceeds from the sale of real estate in June 2019.
Moving to our transportation segment results on slide 12.
Bookings more than doubled year over year, which reflect the 228 million booking on the Boston contract Amendment.
Sales were inline with the prior year, reflecting growth from the Boston project, but were offset by impacts from covert 19, primarily due to delayed bookings in the intelligent transport systems business project, pauses and slowdowns and lower trying to try to shut.
However, adjusted EBITDA increased 71% year over year to 41.9 million, while adjusted EBITDA margin increased 790 basis points to 19.4% driven by the Boston contract reset cost saving an overall strong performance.
As I've mentioned traffic when Kritzmacher have experienced some delays this year due to the pandemic.
I'll give a bookings grew year over year and we continue to expect growth in this high margin business in future periods.
Moving to a mission solutions segment on slide 13 bookings in the third quarter with 79 million inline with the prior year.
Sales declined in the third quarter as compared to the prior year, reflecting nor cater delivery due to the timing of shipments, which had an unfavorable impact on adjusted EBITDA as these product a high margin.
Adjusted EBITDA also reflects continued investments in franchise programs.
We continue to expect a strong fourth quarter for CMS, which I will cover in a moment.
Turning to slide 14 bookings in a global defense segment, where north and last year due to program awards delayed including delays associated with Goldman 19, which in turn back to Phil.
The topline decline also reflects nor a year over year sales the drone training, partially offset by growth in their training.
Adjusted EBITDA margin of 13.1% increased 320 basis points year over year, reflecting strong operational execution and cost management.
Turning to slide 15 for some fourth quarter guide posts, we expect to deliver a strong fourth quarter needing to full year anticipated adjusted EBITDA to be at or slightly above fiscal year 29 team, where we delivered 146.6 billion.
Wow. This is a large fourth quarter around leaf keep in mind. Our mission solutions business is typically heavily weighted towards the fourth quarter due to the timing of orders.
Additionally, the acquisition Appixia, which is a high margin software business generates most of its profit in the fourth quarter since the largest annual license renewal occurs in Q4, and we're pleased to confirm that this order was perceived at the end of July as expected.
I'll touch on some other key drivers in addition to the meaningful Vixia contribution we expect strong shipments of gauge or in the fourth quarter driven by the 73 million in backlog.
Also in CMS, we expect strong delivery of a de tech product line supported by current backlog in additional orders expected in the fourth quarter.
Also anticipate modest growth in a short cycle intelligent transport systems business.
Lastly, a design build fare collection projects and Cts continued to be on truck, including the manufacturing schedule.
Moving to slide 16.
We believe a cost savings initiative.
Which were announced in May I currently on track to Generead cumulative net savings of 30 to 35 million over the course of fiscal year 20 and 21.
Why do we feel comfortable with where we are from an expense management perspective to help mitigate the impact of gold at 19, we have additional levers should we need to take further action.
Our bank net leverage ratio improved to 3.7 times at quarter end and our credit agreement allows us to have a net leverage ratio of up to 4.75 times through December Twentytwenty as a result of our acquisition of Vixia.
We remain focused on cash preservation and lowering our leverage ratio to our targets of below three times.
As a reminder, that debt issued by the variable interest entity in connection with the Boston contract because non recourse to cubic and is not included buyout banks in the calculation up on leverage ratio.
Boston MBT a contract was structured as a public private partnership where we formed a joint venture, but John Lane in which we only have a 10% equity stake, but this entity must be consolidated under U.S. got.
I'll close by reiterating that we are pleased with our execution this quarter.
Especially given the challenging environment and we look forward to delivering a strong fourth quarter to end the fiscal year.
Now I'll turn the call back over to Brad.
Thank you in Sherman.
Turning to slide 17.
We're pleased with our performance and strategic progress this quarter and what continues to be a challenging and fast changing environment.
Cubic remains well positioned in our markets and to successfully execute our business strategy.
But we are not taking bad for granted.
We will continue to effectively navigate the current landscape fine tune our strategy mobilize our resources and take actions to best serve our customers and create value for our stakeholders.
With that let's proceed to the Q when a session.
As a reminder to ask a question you'll need to press star one on your telephone.
To withdraw your question press, the pound or hash key please standby when compiled the Q and a roster.
Your first question comes from the line of Ken Herbert with Canaccord. Your line is open.
Hi, good afternoon.
I can have you drawn.
Pretty good Brett Hey, it sounds like you've obviously on good pace with bookings in CMS in the fourth quarter.
Can you just provide a little bit more confidence or or maybe little bit more color on sort of fourth quarter, and CMS and expectations around not only the topline, but then but then you know to expound upon some of your comments on what we should expect in terms of EBITDA and margin on those products because obviously, it's as youve.
Talked about historically, such a major swing factor for the segment fourth quarter and the full company, but anymore any more detail on confidence around the fourth quarter and CMS would be great.
Yeah, we remain confident regarding the fourth quarter.
From a revenue perspective, we have north of 85% or the orders and backlog.
Through the reached from days and and more actually regarding the profitability show at the end of the year I actually expect them to have higher profits year on year than they did last year.
[noise] does that does the revenues in CMS, just sheer surpass what we saw in fiscal 19.
It will some as you know pick she was in addition.
To what we're doing last year.
Okay. That's helpful. And then can you just.
There's there's a lot of speculation around and I know you've talked a lot about within Cts. The impact of was limited impact of ridership on your direct revenues now, but it clearly sounds like it's a bit of a headwind for timing on a new contracts and [noise].
And some activity in the segment.
Can you just a three to three to nine months I think you called out on sort of new contract wins is there anyway that could get.
Helped if we get more stimulus for four state and local governments and how are you viewing the potential there to to maybe speed up some of the activity from a you know from a from a bookings standpoint.
Yeah. So obviously, if there's stimulus that comes from governments.
That helps the situation as you know we've seen a stimulus provided around the world to mass transit mass transit is essential and you know just to point out that we provide contact was I.E. shape fare collection.
That.
And so I'm.
So having said all that you know that the delays could could be shorter if their worst stimulus I think you'll note that we're working on lots of proposal activity.
I think we said north of $1 billion.
Activity in various cities around the world and the ridership around the World You know Asia has rebounded much more strongly Europe, a little bit less the U.S., just a little bit and so I would expect ridership.
To continue to rebound or going forward.
Okay, and just finally aside from the VNB T. a contract reset was there anything else that directly.
Impacted margins positively Cts in the quarter.
Just really good Q.
Go ahead in Sherman sorry.
Its size, Brad was saying we had very good execution across the board both on the design build into services side and then also as I pointed out we had a cost savings initiatives companywide, which also impacted Cts positively.
Great all right. Thank you.
Thanks, Ken.
Your next question comes from the line of John Roberts with Citi. Your line is open.
Thank you very much.
So a question to sort of carrying on on Kens first point about a about CMS margin. How are you thinking about that business you know going going for you you know you're building backlog forgotten isn't I. So nice positions are investing.
Well when should we be able to see some of that positive EBIT margin I'm, calling for an hour goal 2020 had pegged at 14% to 15% and there's some kind of inflection point that we should be looking out for over the next year or two any help on any perspective on that time would be much appreciate it. Thank you.
Yeah, I think this year the there will be a margin expansion and we would expect that to continue.
The next year or two to though the levels that you suggested we're in a cycle now where we've been winning a lot of programs that have nonrecurring engineering and you know recurring obviously follows a those returns.
During jobs were bad at much higher margins. So the mix will change quite a bit or in the next few years.
And just to clarify that the knicks being the non engine it does the <unk>.
The mix dipping into production.
That's right so the mix going from nonrecurring engineering to to production. The production just to reiterate a was bid at much higher margins.
Understood. Thank you Brett for that and then on on the Cts side I'm talking about this I'm almost an air pocket or delaying some of those.
Other projects you outline.
Is there a chance at some of the road or non public transit stuff will be able to accelerate and fill in some of that whole or should we should we be prepared for cts growth to decelerate I'm here based on a pandemic. Thank you.
No we will see growth or next year in the year. After but your question has good insight roads are coming back much faster and the acquisitions that we had done we believe a we had the best technology and.
Will we believe we'll see expansion there from those products.
All right.
Your next question comes from the line of Louie Dipalma with William Blair. Your line is open.
Hey, Laurie.
Hi, Brad onto mining and Kristen good afternoon.
Good afternoon Louie.
What is the the timeline on I'm watching cubic interactive I know you had a pilot and Miami right before the the Super Bowl and you made a couple of announcements during the quarter, but you know I'm interested and you know what are your effected in investment.
To launch cubic interactive and the Bella rock markets and later.
Essentially the the New York, Boston, San Francisco, and other tier one markets.
Yes, so we're working very hard.
On our partnership with move it.
As you'll recall move it has from my perspective, the best information regarding mass transit in the World and I would argue that we up the best payment technology, and so to deliver that experience.
To users are patrons that use mass transit, there's a tremendous opportunity and so by the end of calendar year.
We will have.
A product that amalgamates broke capabilities and that will also have a cheaper cubic interactive with it as well so you'll see some momentum.
At the end up this calendar year and into next.
Just see those digital products or you know take hold.
Thanks, that's helpful and fair for onto mind, you discussed had the reduction of leverage is a major priority during the quarter you reduced net debt by around $50 million, but there's a lot of work left what do you expect no.
Leverage to be by the ended the year and do you have any sense on you know when the leverage ratio can fall back below three times.
Thanks, Louise So, yes, we had a strong quarter in Q3 <unk>.
$54 million net leverage reduction.
And our leverage ratio went down to 3.7 times was a 3.96 times in Q2.
For the fourth quarter, we expect a positive free cash flow again, invitro and again adjusted EBITDA.
I will be stronger than last years adjusted EBITDA, just given the full year guidepost that we have provided which will further help leverage stray shows go down we continue to work through.
The fiscal year and our next year also to continue to lower leverage regarding the exact timing of three times, we're still working through a business plans.
And also there is a little bit of uncertainty because of the pandemic, but be will continue to make progress towards the three times a target.
Thanks.
Your next question comes from the life of Michael Ciarmoli with Suntrust. Your line so anyway. So.
Hey, guys. Good evening, thanks for taking my questions here.
Brad just maybe on the.
The the contract you called out the high capacity backbone I mean, it sounds like a great opportunity and I'm just I I think John was hitting on this about the mix I mean, clearly this sounds like it'll be a little bit of a margin headwind in the near term I mean, they're going to be just trying to I guess level set expectations and CMS.
You know you've got the advance Battle management system is there a little bit more margin pressure in the near term on some of these wins before we get to that mix shift.
Yeah. So overall Oh, you know we've been doing a lot of nonrecurring.
Ah from major wins that we had last year. The MQ 25, the joint strike fighter the M- 60 and blooms flying.
Those were major wins for us.
The high capacity back phone starting portion of the contracts a $38 million.
You know that the margins, there or or lower single digit, but when you move into the production phase of these programs there there a double digit margins and we will move us.
ER to the mid teen area that we've talked about in this business I'll also note that in that portfolio Gator has very nice margins.
Ditech has very nice margins a the picks software business that we picked up has great margins. So I would expect that margins to continue.
To expand as we go.
Okay, and then maybe dovetailing into that the 30 to 35 million of cost savings on Schuman can you just give us a sense of of what hit in the current quarter or maybe what segment. We're seeing it. Most then you know as we look forward into the I guess the full realization of that savings there should we expect to see that drop right.
EBITDA margins in 21.
Yeah. So that's the cumulative 30 to 35 million. So so far we are in Q3, we had a little over 8 million hit the books.
Obviously Cts has majority of the people so majority of the savings would go to Cts.
And then we'll have additional savings in Q4, and then the remaining to get to the cumulative 30 to 35 would be next fiscal year.
Yes, a straight to the bottom line.
The bottom line, okay, yeah, its offsetting some of the impacts from coal, but that we had.
Right.
Yeah, the cobot impact to I guess my last one the the 41 million of revenue headwind.
I don't remember in front me I think that 13 or 14 million of EBITDA you pick that up in in the fourth quarter or 21 are you know how should we think about that from a from a modeling standpoint.
Well as lot of these what project delays and as Brad mentioned, you know, we're seeing a three to nine month delaying projects. So ultimately maybe into the two years three years, there's a catch up where a lot of pent up demand comes but.
There is delaying projects up couple off the projects, we had positive a slow Downs for example, New York, We announced last quarter that down a one month, because they're catching up on the installation on that.
We had a project in Los Angeles, where installing the readers was put on hold for the safety of employees starts back on track and we're trying to catch up.
The delay and then the ridership impact obviously doesn't come back because we have certain part of our revenue tied to ridership, but just doesn't come back.
Got it got it and maybe just one more just taking into consideration somebody's causes delays you know I guess more under current projects and any changes to the that you see from co bid with it you know a fiber to think about that that sort of three your free cash flow profile that you've guided us to does anything.
Slide out further to the right in terms of cash cash collections here as we're thinking about I know you called out strong fourth quarter for cash, but anything we should be aware about cash collections with some of these delays.
No our three year target remains on track up the projects remain on track or wherever the couple of projects that I mentioned, where we had an apart there, but temporary fathers and customers are interested in I've actually got you NAPW.
And further to the point, where in New York actually pause the project be worked with the customer to break the milestone payment into three milestone payments and because the first one in Q3.
So.
Talks to the Testament off our employees and our relationship with the customer and the good work our employees are doing to serve our empty a customer.
Got it pretty helpful. Thanks, guys.
Again, if he would like to ask a question press star one on your telephone.
Next question comes from the line of Mikes He comes with Needham and company. Your line is open.
Hi can you have like Cecos here at Virgin maturity has everyone doing.
Hi, Mike passed or beds to Jim Please.
Well do we'll do busy night over here, so we're doing the divide and conquer but.
I wanted to ask you with respect to the Cobot 19 impact that we saw in fiscal Q3.
Can you help help us on package I guess, what was specific maybe two to Cts or if I'm thinking about what's coming from the reduce transit ridership and I guess what on when them. Ultimately trying to do is is unpack is that and get a better sense of what we might anticipate impacting cubicin in fiscal Q4.
Where to what extent any cobiz 19 impact has been contemplated in the guide posts we've been provided today.
Sure so often $41 million, we talked about job just under 30 million was tied to C. D death.
About a.
Little less than a tornado that was based on ridership and then the rest was delayed and slow downs.
Thanks for that and then I did want to come back to the HCP ACB contract as well.
Just.
Wanted to get a sense because again. This this 4 billion addressable opportunity over 10 years is obviously, just large number but for cubic itself.
Are you guys actively pursuing that entire 4 billion or are you actively addressing that entire 4 billion or do you get there through partnerships or additional acquisitions and internal R&D just curious how much of that.
Cubic connect how much of that wallet cubicin actually Greg with its with its product portfolio.
Hundred percent, a will attack that 4 billion hard or.
With the technology that we've come up with a.
We've been working on a number of years and what it allows us in essence is to put a ethernet in the sky. So that all the participants in the Sky can have a a common secure picture and so.
You know after we do the development and demonstrate the air and ground.
Pieces. A then we will start putting that on platforms, we called out a couple on the charts, but I think that we'll continue to expand its a key priority.
Oh, the department of Defense, the joint all domain, all domain command and control system and our Halo product is in the middle or that we're thrilled we be many a prime contractors or.
And our team did a great job, we've been investing and developing that technology that we think.
It is very very unique or.
The last five years or not only internally with company monies, but also in partnering with the Air Force Research lab. So this is are tremendous win for us and we're thrilled.
That's helpful and one more on the cost savings if I may I'm, just thinking about the the cumulative net savings of this $30 million to $35 million.
With 8 million hitting the books in fiscal Q3, which was obviously.
Impacted by the co bid.
Cobiz 19, but curious has that exits the $8 million. It did hit fiscal Q3 was this was there anything onetime in there faster than we anticipated because again I'm just looking at the stretching over the next five quarters in the fiscal 21 to get a sense of how how these savings layering.
Thanks, Yeah, I want I wouldn't say it was unanticipated reports are right. According to apply and there are some onetime actions in there for example, we stopped for a one can match for the rest of this fiscal year we've.
Put a freeze on salaries. So no merit increases through end of next fiscal year, obviously travel and trade shows and stuff like that and discretionary spending is down a us and and then there are certain actions that are more permanent in nature, but in terms of organization.
Great. Thank you guys.
Your next question comes from the line of Jon Raviv with Citi. Your line is open.
Hi, Thanks for the follow up.
Brad appreciate the perspective on where CMS margins or can go and that's on the ship around that but I know this question is on Cts.
Yes margin opportunity some of those higher margin solutions ramp up you know maybe to the kind of thing that would've been covered at the Investor day that never was but you know and any any thoughts about how you're thinking about.
Long term, there and maybe any preview for for gold 2025, if you will thanks.
Well, we're not previewing goal 2025 today and Kyrstin will let us know when we're going to help the investor day, but what I would say a in your questions very insightful, what I would say is that we get these digital products.
Out into the market place there at much higher margins and what I will also will say is that we're driving down the risk quite a bit as we're delivering these big five contracts and so I would expect margin.
Just to continue to improve.
In Sherman was very clear that we were helped by the Boston contract or this quarter, but margins in Cts I think we had given sort of a guide post a middle double digit.
Middle double digit margins and so we're headed there.
Yes, Thanks, a lot I try thanks again.
Your next question comes from the line of Louie Dipalma with William Blair. Your line is open.
Thanks for the follow up regarding.
The the joint all the main commanding control on $950 million I'd like you should investors think of that.
I'd like you similar to.
You're like 962 million dollar I'd like you for for key to see too in that like do you expect to realize most of that $950 million or is that amount expected to be split between the the several.
<unk> awardees for that program.
Yeah, It's a it's a multiple award <unk> Q.
In contrast to the T to see two which was single award.
So and they awarded contracts what I would say is again a high capacity back bone when that technology is very relevant.
To that mold tie award I'd like you and we think our technology is unique.
Okay. So is that.
With that high capacity backbone is that not a task order under this not 50 million not completely separate out.
It's a separate a separate contract.
And was very additive and fortunately, we'd be lots of household names.
Sounds good that that's helpful. Thanks Brent.
There are no further questions at this time I will turn the call back over to Brett Feldman.
Thank you for joining us today before we signed off.
I want to take thank the cubic team for their ongoing commitment to serving our customers and keeping our businesses safely operational during the ongoing pandemic.
We appreciate your support and interest in our Great company. Thank you so very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating may now disconnect.
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