Q4 2020 Cubic Corp Earnings Call
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Good day, and that's really true maybe get.
Hello, everyone and thank you for joining cubic what cash and.
And today by Brad Feldmann, Chairman, President and Chief Executive Officer and.
And and Jim and AGA Executive Vice President and Chief Financial Officer.
Before we begin a friendly reminder, their presentation contains forward looking statements and are made pursuant to the safe Harbor provisions of federal Securities laws.
Most recent FCC filings include risks factors that could cause the company's actual results could differ materially from our expectations.
In addition, we have included non-GAAP financial measures and our discussion.
Reconciliations of these non-GAAP financial measures the most directly comparable GAAP financial measures can be found and today's press release and and the appendix to today's presentation with that I'll turn the call over to Brad.
Thank you care systems.
Welcome everyone and thank you for joining us.
Hope you and your loved ones remain healthy and shape.
On today's call I'll discuss the highlights for fourth quarter and full year performance from fiscal 2020.
Followed by an update on our strategy.
And Truman will cover the financial results in more detail and discuss the outlook.
Fiscal 2021.
Please turn to slide three.
As you saw from our announcement, the shopped or no.
Fourth quarter performance reflects strong execution and.
Shaw would finish to the fiscal year.
Yes, sure brought on unprecedented changes.
With the COVID-19 pandemic.
Altering the way, we work and live.
Against the backdrop of economic challenges and on certainty.
Our 6000 challenge and Q.
On an exceptional job delivering mission critical solutions to our customers well.
Well shape regarding the health.
And their fellow team members.
We are excited about the future as we embark on our recently announced net cubic strategy.
Which we expect will drive strong organic sales growth.
And increase adjusted EBIT da margins to the mid teen range.
Fiscal 2025.
Finally to support long term sustainable value.
We have advanced our yes, two priorities this year and reporting on our progress will continue to be and increasingly important area of focus for cubic.
Across the company, we remain guided by our common purpose.
Our teams innovate.
And make a positive difference and People's lives.
Turning to slide four.
I'll briefly cover a few highlights of our results.
As we communicated to you on the last earnings call we.
We expected to see a strong fourth quarter.
And we delivered against that expectation.
By achieving record quarterly share ALJ up $475.4 million and increase of one per share up year on year.
And record adjusted EBITDA of 104.2 million and increase of 36% year on year.
We also delivered robust adjusted free cash flow of 87.5 million and the corridor and we continue to reduce our net leverage ratio.
Which was 3.4 times at the end of the quarter.
Our fourth quarter performance was driven by the mission solutions segment, which delivered significant growth across all key metrics.
Well adjusted EBITDA doubled year on year and this segment the full year adjusted EBITDA was below our expectations, reflecting significant investments and franchise programs.
Which enhance our whitey and shot on modems systems and line of sight common data link solutions shot.
Performance was also impacted by delayed orders for Gator and support in the United States Army urge and operational need.
Which we expect to book and fiscal 2021.
For the year the book to Bill rate share was greater than one in all segments. Our backlog remains strong and 3.7 billion and we have an additional 1.3 billion of available capacity on our sole source I'd like huge which is not reflected in backlog.
Well for your sales decrease slightly versus fiscal 2019, adjusted EBITDA for the full year increased 8% to a company record of $158 million and adjusted EBITDA and margin expanded 90 basis points to 10.7 per shot.
Overall, we are very happy with our execution and financial performance for the fiscal year, considering the ongoing COVID-19 pandemic and its impact on our customers and our businesses.
Before we move to the next slide let.
Let me comment on the U.S. federal budget environment.
We are pleased that Congress and the administration agreed to a continuing resolution that funds the government through December 11.
Which supports our U.S. military programs, including Cheechoo, She true and federal transportation funding under the extended trashed on.
We're hopeful that Congress and the administration will quickly complete the F.Y. 21 appropriations process and reach an agreement on the new COVID-19, Bill which includes transmitted and highway funding.
We believed there was strong bipartisan support for National Security funding as indicated by the $740 billion. That's why 21 defense appropriation and we believe that our portfolio was well in line to support the United States National Defense strategy.
The expected outcome of a split Congress and 2021 is unlikely to result in a reversal of corporate tax cuts or result in significant changes to the established top line for the defense budget.
There was also a bipartisan support for transportation infrastructure spending, including intelligent transportation and congestion management systems and the next surface transportation reauthorization that.
Turning to slide five.
We have made a lot of progress this year and I'll share a few key milestones share.
Starting with transportation, we're pleased that our major projects remain on track.
And New York, we are on schedule to deploy the omni readers and every subway station and on all New York City buses by year end.
Next we made good progress and watching Angeles, Washington, DC, and Chicago, with our mobile apps and virtual card functionality providing.
Providing travelers with the shape or way to pay per their journeys, while also delivering a seamless customer experience.
Well, our public transportation agency customers continue to face financial challenges operating and this unprecedented and bar and but.
Our transportation backlog of $3.1 billion is largely insulated from the impacts of COVID-19, due to the critical importance of fare collection and fare collection modernization, including contact which pretty much.
We have not assumed to change and the operating environment and the near term, but we are encouraged by the initial reports on the epic and she and availability of a potential vaccine.
As we discussed on prior earnings calls, we have experienced some delays of new awards, but our pipeline remains robust.
We continue to work closely with our customers and we are well positioned to help them solve for current and future challenges such Josh building Trust and public transportation and creating shape environments for staff and travelers.
Accelerating contract, which technologies, removing physical touch points and improving safety through real time data.
Improving journey planning to shift the peak of travel.
Adapting systems to be more flexible and scalable.
Limiting congestion and improving throughput per alternate modes of transportation.
And shaping equitable sustainable and economically viable transport networks that promote prosperity.
Turning to defense.
One of our key achievements was our recent award by the United States, you're forced to deliver the high capacity backbone demonstration.
During the last week about Joburg cubic pollute three flight tests of our he loves systems.
As we have previously discussed H.C. B is a critical element of the joint area layer and network and our innovations help ensure iridium layer and network availability and resiliency and all environments to accelerate data delivery to increase decision speed.
During our testing we achieved a significant technical milestone by validating multiple concurrent common data link beans from a common or EPS schorsch Wi.
We further proved mature functionality and other related requirements of this effort such as air to air and air to ground communication knowledge interoperability with other fielded terminals and autos linked establishment.
This achievement positions Halo is the best solution for the joint area layer and network connectivity as a key enabler to deal with these high priority joint all domain command and control initiative.
Our solution integrates capabilities across your protected communications and she too is our portfolio.
We will demonstrate the entire air and ground system, including net work and active cyber defense during calendar year 2021.
We anticipate that our successful execution on the Shepherd will drive growth over time as we deliver on the H.C. B program and transition the capability to platforms addressing up 4 billion dollar market opportunity.
In recent years, we launched several initiatives to improve our performance and we believe that our results demonstrate that.
We improved our one cubic culture and infrastructure, while reshaping the company as a technology driven market leading business.
We have a strong track record of achievement and our teams have a lot to be proud of.
Over the last three years, we have grown sales are 10 per cent CAG, Dar and expanded margins more than 280 basis points, while we've made significant investments to support future growth.
Turning to slide six.
Next cubic is the next chapter and our transformation, which has been underway for more than a year as part of our strategic planning process. The.
The COVID-19 pandemic, let us to reassess the risks and opportunities across the organization accelerate our efforts Reimagine the way, we work and take action to further improve the company.
Next cubic is underpinned by our strong foundation that customer centric innovation market, leading positions and exceptional diverse talent.
Our gross initiatives remain largely unchanged and our next cubic efforts are aimed at maximizing these opportunities and delivering on them with efficiency.
And transportation, we will continue to deliver on our big five Cts projects.
Actually my eyes, and reuse ability and capitalizing on our best in class position to capture opportunities across existing and new customers internationally.
We anticipate strong growth and our intelligent transportation management business, where we have invested and best of breed solutions and are growing our sales force this year to support our strategy to expand both domestically and internationally.
And defense our recent franchise wins are a testament to our strategy and investments and technology.
We have focused on delivering these programs effectively and generating strong margins upon entering the recurring production phase.
We also capitalized on the broader pipe line associated with these wins, leveraging our market leading size weight and power Schwab and our holistic approach to mission and effectiveness.
We're also focused on expanding dual use technology for defense and commercial markets, such as space by GE and game based training.
Across all of our businesses, we are creating product oriented information rich platform businesses that generate new recurring revenue streams.
We're especially excited about our digital platform and transportation, where we are advancing our strategic shift from being a provider of payment solutions to a provider of information and platform applications.
We are on track for the platforms first release at the end of 2020 partnering with moving to combine their journey planning solution with cubic smelting and see cloud based on their payment solution.
And their near term, we expect this to drive more users and transaction fees and overtime and drive more agency wins and create value true mobility as a service offerings.
Overall, our next cubic strategy aims to drive a step change and value creation and deliver sustainable financial improvement through both functional and cultural transformation.
Turning to slide shop, and as you can see here next cubic that's driving us towards a longer term financial objective to achieve mid to high single digit sales growth and increase our adjusted EBIT da margins and return on invested capital to the mid teens by 2020.
He five supported by improved scale and operating leverage as well as new high margin revenue streams we.
We are building on cubic's existing software and cloud focus solutions that include our mobile suite and transportation, which was at the forefront of our mobility and service platform as well as our full motion video platform and expertise and game based training.
Turning to slide eight.
This is a summary of the significant near term opportunities for improvement that we have identified to drive better execution on key growth initiatives and transformed the way we work there.
This spring, we partnered with a leading consulting firm to perform a comprehensive outside and assessment.
Coming out of that effort, we developed performance improvement targets for each area of the business. We have completed the specific implementation plans and are now and the execution mode.
First Skeoch and was the combination of our mission solutions and defense training segments, which we announced at the end of August.
Another key initiative underway is on the transportation business, where we are optimizing our global footprint and growing our engineering workforce and India to drive the engineering excellence and cost savings.
Overall, we are targeting meaningful financial improvements within the businesses and across GNS day external spend on manufacturing and engineering.
A lot of work has gone into identify and the scope of opportunity and we've identified between 50 and 75 million of incremental adjusted EBITDA and we expect to achieve run rate by the end of fiscal 2023.
Turning to slide nine for a few updates on E.S.G. This month, our chief human resources into virtually officer gracefully was named among the 2020 top 50, chief diversity officers, but the National diversity Council Grace leads our diverse.
For the and inclusion strategy, which drives innovation across the organization with clear priorities related to recruiting diverse talent expanding unconscious bias education.
Engaging and inclusive work force strengthening community outreach and supporting supplier diversity a day.
Additionally, we're very honored to be named as one of San Diego Union Tribune top workplaces.
Switches and employee nominated program.
Our San Diego employees took the initiative to share their perspective around our culture work environment diversity benefits recognition programs ethics and leadership.
We have been working hard to make meaningful strides at our company and we are thrilled to receive this award.
Additionally, our recent progress on key environmental and social topics reflects our support of the 10 principles of the ULE and global compact.
Including the publication of cubic global human rights policy and living wage statement.
These new disclosures can be found on our website.
We also completed and HSC assessment, and North America as part of our effort to accurately measure and monitor HSC performance on a global scale.
With that I'll ask and Sherman to discuss the financial results.
Thank you, Brad and Hello, everyone. Please.
Please turn to slide 10 to cover the fourth quarter financial results.
We executed very well this quarter with strong year over year growth across bookings adjusted EBITDA, adjusted EPS and adjusted free cash flow.
Sales for the fourth quarter were 475.4 million, which.
Which was comparable to the prior year and down 4% on on organic basis, reflecting robust growth and mission solutions offset by lower sales from transportation and defense training, which I'll discuss in more detail when we get to and segment results.
We continued to experience impacts related to the COVID-19, and pandemic, including delayed new orders across all segments and the impact on floor ridership on certain Cts operations and maintenance contracts.
Bookings increased 47% to 368 million driven by mission solutions and transportation.
Adjusted EBITDA of 104.2 million up 36% year over year, reflecting strong performance and mission solutions, including the enterprise license renewal Appixia and benefits from companywide cost management initiatives.
Adjusted earnings per share were $2.82 on.
More than 50% year over year, primarily reflecting higher adjusted EBITDA and lower tax expense.
Adjusted free cash flow was strong at 87.5 million and the fourth quarter driven by working capital management.
Turning to the full year results on slide 11, as Brad mentioned, a book to bill ratio with greater than one across all segments.
The major drivers of bookings growth being per contract reset with the Boston and between <unk> and the Chicago upgrade award and transportation as well as and training programs and defense back.
Backlog grew to 3.7 billion up 8% year over year, and we have an additional 1.3 billion on unused capacity on our key sole source I'd and coupon trucks from.
For the full year sales decreased 1% as reported and 3% on an organic basis.
We estimate that the impacts related to COVID-19 totaled up to $73 million for the full year, primarily reflecting delayed orders and lower trends and trying to ship.
Adjusted EBITDA increased 8% 258.3 million and adjusted EBITDA margin increased 90 basis points to 10.7% and strong performance and transportation coupled with the contribution of the high margin Vixia acquisition, and companywide cost management initiatives more than offset signal.
Moving to investments and mission solutions and.
The impacts related to COVID-19.
Adjusted earnings per share were $3.32 up 6% year over year, reflecting higher adjusted EBITDA and lower taxes, partially offset by higher depreciation and interest expense.
Adjusted free cash flow increased to 60.5 million compared to 14.1 million and the prior year.
Collecting receipts of milestone payments on certain long term development contracts.
Moving to the transportation segment on slide 12.
Bookings and the fourth quarter 442 million and include the next bus award for San Francisco, Muni, and Atlanta Maintenance Award.
And bookings and traffic where and grid smart.
For the full year bookings were more than double driven by the Boston reset and the Chicago upgrade.
Fourth quarter sales decreased 6% as reported and 8% on an organic basis to 239 million.
Eat into full year sales up 841 million down 1% from fiscal year 2019.
Book fourth quarter and full year sales reflect the timing of development work, which reflects lower sales on the New York on track, partially offset by an increase and development work on other projects.
Both fourth quarter and full year sales were negatively impacted by a little bit 19, due to delays on new awards and lower Crohns and tried to show.
The estimated full year impact of COVID-19 on sales was up to 46 million.
Fourth quarter adjusted EBITDA for the transportation segment decreased 1% to 45.7 million.
As the impact of lower sales was mostly offset by cost savings, resulting in a higher adjusted EBITDA margin.
Full year, adjusted EBITDA increased 21% to 134 million, reflecting the Boston contract Amendment strong execution on service has gone trucks and cost savings, which offset unfavorable impacts related to COVID-19.
Moving to a mission solutions segment on slide 13, as we have communicated throughout the year would be expected performance for the mission solutions segment to be backend weighted.
Fourth quarter sales of 170 million, an increase of 21% on an organic basis, reflecting higher sales of rugged internet of things products.
Full year sales of 357 million decreased 6% on on organic basis.
As growth from drug and Internet of things products was offset by lower deliveries on gauger.
Including delays associated with COVID-19, and other delays such as urgent operation needs order.
Fourth quarter CMS adjusted EBITDA was an impressive 59 million more.
More than doubled the prior year period. This.
This primarily reflects higher sales of rugged internet of things products and.
And the contribution from the high margin Phyxius acquisition.
Full year, adjusted EBITDA decreased to 28.2 million compared to 34.4 million and 2019, driven by significant investments up 18.8 million and franchise programs and higher research and development expense.
These impacts were partially offset by the contribution on Vixia.
Turning to slide 14 per.
Fourth quarter bookings sales and adjusted EBITDA and our global Defense segment, when North and last year due to from Prime award domain, including delays associated with gold at 19.
Fourth quarter, CGD sales declined to 66.4 million compared to 91 million and the prior year period, leading to full year sales of 298 million a decrease of six per cent compared to the last year.
Both the fourth quarter and full year, reflecting on our sales and draw on training due to delays and new awards and exercise delays, primarily due to COVID-19.
Fourth quarter <unk>, adjusted EBITDA decreased to 9 million compared to 13.2 million and the prior year period, while the full year adjusted EBITDA was essentially flat and 53 million, reflecting continued focus on cost management.
Moving to slide 15.
I'd like to remind everyone that we combined our defense businesses to form a new segment called cubic mission and performance on Houston C and B S.
This was our first ski next cubic action and allows us to leverage our talent and calm and technologies to enhance collaboration and customer intimacy, while improving our organizational and operational efficiency.
Beginning and the first quarter of fiscal Twentytwenty, one we will report our results on the two segments.
Cubic transportation systems and cubic mission and performance solutions.
Pro forma financial results, let's see MPS intuitive and the appendix of the presentation.
Moving to slide 16.
We continue to have a strong focus on liquidity and maintaining a healthy balance sheets.
Our net leverage ratio decreased to 3.4 times as the result of strong EBITDA performance and continued reduction of net debt during the quarter and we remain focused on lowering on net leverage ratio to our target and below three times.
We ended the fiscal year with adjusted free cash flow of 60.5 million.
And we are reaffirming our three year adjusted free cash flow and version targets all over 100% of net income.
Turning to slide 17.
We are pleased to reinstate annual guidance for fiscal year Twentytwenty, one we expect sales and the range of 1.55 billion to 1.6 billion, which reflects 6.7% growth at the midpoint.
For adjusted EBITDA, We expect a range of hundred and 70 million 290 million, reflecting our continued focus on margin improvement as part of next cubic.
We expect adjusted EPS and the range of $3 to $3.60.
Based on our assumption for a higher effective tax rate.
Our confidence and the full year and supported by good visibility from its roughly 80% of our anticipated sales supply and either and backlog or high probability orders, including both supported by existing contract vehicles and expected follow on.
As a reminder, the seasonality of our business and cadence of order activity for higher margin product drives the majority of a profit to the back end of the year and we expect a similar dynamics and fiscal Twentytwenty, one, including our expectation for adjusted EBITDA for Q1 to be flat or slightly higher than Q1 on fiscal two.
And do 20.
In closing, we are very happy with our execution and the fourth quarter, especially given the challenging environment and we expect to deliver solid growth and margin expansion and fiscal Twentytwenty one.
Now I'll turn the call back over to Brad.
Thank you and Sherman.
Turning to slide 18.
We are pleased with our performance and strategic progress this year we.
We believe that cubic remains well positioned and our markets to successfully execute our next cubic strategy with clear priorities and significant opportunities to drive gross and operational excellence.
Before turning to questions.
I want to make one clarification.
As you probably know the cubic board adopted a shareholder rights plan and September and response to the rapid accumulation of our stock by Elliott management.
At that time Elliott also expressed an interest and acquiring cubic.
We will not be providing any information on this topic today.
We ask that you keep your questions focused on our earnings results and outlook.
Thanks for your cooperation in that regard.
With that let's proceed to the Q and a session.
Operator.
As a reminder to ask a question will need to press star one on your telephone and to withdraw your question press the pound or hash key piece.
Please limit yourself to one question and one follow up please standby on the compiled the Q and a roster.
Our first question comes from Jim.
But can teach with Needham your line is open.
Hi, good afternoon and and.
Why is cash.
Good good to hear from you Brad I'm, just with respect to the.
The seasonality.
The.
Revenues in fiscal 21, I'm wondering how.
And how we should be thinking about the Cts business.
I think we all understand how backend loaded the defense.
Defense business can be but is there any any color you can give us on how we might think of the Cts business next year for this year I should say.
Jim I'll, let and showroom and address that.
Hi, Jim.
So seasonality for our transportation business also indicates that up lower Q1 day, we have the Thanksgiving holidays, and we have the Christmas holidays, So less working days and we are engineering company. So Q1, typically a little bit lower from a revenue and profit perspective, and Cts. They also ramp up and.
Q3, and Q4 and also given that we expect a slow gradual recovery and ridership and the seasonality of parts on a intelligent traffic management business traffic, where and great. Smart is also more some are focused.
Got it that's helpful and just with respect to that.
The color you gave on Q1 adjusted EBITDA and.
Anything unusual in that that number being you know roughly flat with the year ago period is there increased cove and headwinds day, you're now anticipating for that.
Any any color on that.
Yes, Jim So obviously last year Q1, we had no coal but impacts are going.
Going into Q1 of this fiscal year, and we have lower ridership and some impacts of cold, but despite those cold cold it impacts in Q1, we believe our adjusted EBITDA would be flat to slightly above last year, but show a strong execution across our business and.
The initial benefits from our next cubic initiative.
Okay, and so I'll jump back in queue.
And with some follow ups. Thanks.
[music].
Our next question comes from John and it's with Citi. Your line is open.
Thanks, Good afternoon, everyone.
On on next Coupe excuse me on net cubic defense.
A little more I know you know on slides there, but its sort of big picture like what do you witnessed cubic what are some of the things that you're going to start and doing that you were not and doing before and the same token what are some of the things are going to stop doing the three that you were doing before.
And sort of and that conversation, what's the linear clarity on that path and mid teens, you talked about margin growth and that's why 22 and the year ahead and wasn't linear narrative on mid teens over time could we see some step back if you choose to enhance investments and a given year or do you expect it to be relatively linear. Thank you.
Yeah, Hi, this is Brad we expect the margin expansion to.
To be linear year on year.
Over the next five years or so some of the things that we're focused on as you noted we completed the first step already and that was combining the two defense organizations, we did that and September.
We're looking at all kinds of things things like a geo shifting some of our engineering work force and she t. as we're looking at rationalizing our factories, even more we're looking at reducing costs and the supply chain.
And we have.
About a 175 initiatives that we're working on over the next day or you know two to three years about half of them or cost related and half with them on a revenue expansion related and what we're trying to do and make sure that.
And we get the cost shaving or and do that dovetail with a with the investment. So we're very very excited about the possibility and very savvy about improving the margins of the company, while continuing to grow it and also on.
No that is just not just a financial it also has to do with our culture. You'll note on one of the charts, we talked about cultural transformation and so there's a <unk> organizational health index that we took as a baseline I might add we were very high and the second quarter.
And then we're going to work our way into the first quadrant and we're very excited about this and I appreciate the color.
Thanks, Brent although there was money from one and my follow up right. There. Thank you.
Our next question comes from Mark Strouse from team working on your line is open.
Good afternoon. Thank you very much for taking my questions.
And so good to hear that the the big five Cts contracts arm continue to track expectations.
And can you give an update though to your your commentary I think from the last call read where you talked about some delays and your and your pipeline projects are you seeing any thawing and those conversations with those customers and.
And it kind of a related follow up to that in your guidance for fiscal 21, and you've got about 80 per cent visibility from your from your backlog and your your high probability wins.
I guess can you compare that to entering fiscal year 20, what was that number and what gives you the confidence that that other 20% and will come into to hit your guidance.
Yes, so and transportation as we talked about on the previous call. There were some delays and orders we continue to see about the same not not much change.
Change there with recall on buttons and and the forecast we're very confident so the 80 per cent.
And I'll, let and show them and talk about if he knows the number of percentage year on year, but.
You know we're in a continuing resolution now and as you know.
After the election and jumped Senate <unk> Committee marked up their bill and we understand people are meeting now to come up with a bill I don't know if it will be done by December 11th or we'll have another she are but I expect it will be done and the near term.
And so as you know we have orders that are you know connected to that so we're pretty confident that we'll have a full budget a fairly quickly and.
True when do you want to add color on a more color on confidence please.
Sure.
Thanks, Mark so on the 80% and backlog and high probability on the high probability are mainly renewals follow ons and program of records, where we already have the capacity and lot of those and the defense side you can.
Chris and back to the President's budget. The remaining 20% we have a very strong pipeline not to say those on high probability. Those are also high probability, but there are a lot of smaller book to Bill orders for example on traffic what grid smart the time from a book into schuff and could be four to six weeks or so and that's 100 million dollar business strength.
There so there's very strong visibility and actually it does here the visibility is slightly higher than we had last year at this time or given the fact that we were and the process of certain diary negotiations on the Boston contract et cetera, where the timing was a little.
To be determined and so we feel very strongly and going into next year about <unk> prospects.
Okay. That's very helpful. Thank you and and then just one quick follow up and Jim and Oh.
A lot of moving parts and Cts this year and ER.
With New York transitioning from design build into on EM.
Can you just talk about the and the revenue.
Profile I mean, you've already talked about the seasonality I guess to to Jim's question, but do you expect gross in that segment this year.
Yes, we expect growth and both our Cts and our new CMBS segments. On this you know from a top line perspective.
Okay simple enough. Thank you very much.
Our next question comes from Ken Herbert with Canaccord. Your line is open.
Hi, good afternoon.
And.
Hey, Brad I just wanted to follow up on that question on the 21 outlook.
The guidance implies at the midpoint sort of six and have to 7% top line growth Cts was obviously basically flattish this year is.
Is it fair to assume that while it may grow and 21, and we continue to see stronger gross out of the new a C. M. P. S segment or how should we think about that growth by segment and next year or in fiscal 21.
[noise], it's in Sherman said there'll be growth and bulk segments.
And as you know we have very large backlog. So it's just a function of where those contracts are and.
No they are per cent complete path and trim and do you want to add to that.
Yeah, I can read on GAAP segment guidance, but we do expect good growth and our Cts business. This.
This year and I think on both our businesses will perform well from a gross perspective this year.
Okay, and that's the conversation with your Cts customers changed at all and just in terms of the timing of the sort of a ridership recovery when I think about the major metropolitan areas and and incremental risk to the capital spending I mean I know your your obviously your revenues are not driven by.
Ridership, but eventually you know eventually these have to catch up and I'm just curious if you're sensing any change from your customers and their and their outlook and war on Cts and sort of confidence near and mid term on on their ability to continue to fund the programs.
Yeah I think.
So.
Ridership has been down a we all share though that there's been discussion regarding back change you know coming and and in the mid term or in terms of the distribution of those we anticipate are that are out there.
We'll be growth next year and that you know she tee us in terms of orders and the like we will have good book to Bill next year, and then it'll grow even more than that the year following.
All right. Thanks, Brett.
Our next question comes from me.
Michael Ciarmoli with Trust your line is open.
Hey, good evening guys. Thanks for taking the questions.
Brett I guess just to maybe stay on that Cts and ridership you know.
I had a couple of times, you know lower ridership, creating some headwinds I know you know I think you guys have called out ridership is less than two per cent.
Of total annual revenue the the ridership pressure I mean should we think of that as you know pressuring your customers and and municipalities and creating delays or or you know I again, just trying to reconcile you know ridership delays because it's clearly you know not not a big piece of your revenue but is that just.
You know, creating some some constipation with execution on the on the programs you're you're working on.
No. The programs are going along fine so stuff that's in backlog, we're executing and as you pointed out and Fortunately you know we have a backlog north and $3 billion in that business. So that that's moving along fine there's a small sliver that's a writer share.
Our focus I think it depends upon the timeframe as we know these municipalities are funded either a true government grants or a fair box revenue or a sales tax and it depends what part of the plant and you're on.
So that that is delaying some capex a little bit which are you know sort of growth initiatives. A few years from now so and we and say that the you know the cobot is not going to last forever [laughter] Ah, Thank God and ER that the order flow will.
And you know pick up having said that next year, we expect good order flow and then we expect that to pick up quite a bit to your following.
Okay, Okay, and even you know just as we look at the the guidance framework for 21, you know I think Theres No news out today about the New York and P., a meeting and probably a $12 billion bail out you know that everything you know the pressure that's being incurred on the M.T.A. and potential.
Timing of you know revenues, yet and all that seems to be and the scope of how you guys and thinking about kind of a pacing for 21.
Yes, that's all encapsulated in our and our guidance what I would say is we have considerable backlog with our customer and the M.T.A.M.
And we'll we'll burn that backlog off and there's been no discussion and.
About anything different than that in fact, weve been encouraged to speed up and so were you know speeding up you might remember we were slow down from about six weeks and the spread on time do hope that and then after they stopped us and that was just on the inside.
Elation, They said hey can your speed up and get done by calendar year end and we're tracking every day. The how many buses were wiring, where those validators or going and we're on track to finish on but across all of New York City.
This calendar year, so things are on track and we have seen visibility on that revenue.
Got it got it and maybe just the last one you guys you touched on it a couple of times about the expectation for for good bookings next year, and even layering and a decline of 2020 fives kind of a target and you've got out there I think on one of the slides yet throughout a 30 37 billion plus pipeline.
And you can you give some color on on that pipeline and and how you think smoke and maybe convert on that pipeline and I'm, assuming it's it's more skewed heavily towards Cts, but but maybe just even give us some of the bigger programs or opportunities are tracking and maybe what should we be looking for.
More on as you guys, maybe try and execute on that that opportunity.
So we of course like a lot of companies use from methodology to measure and the size of the pipeline and.
That is type line adequate Oh.
To drive gross.
So and we look at a factor of north of 20 to one of the pipeline of the revenue that we need.
And so we watch those metrics and we're above those metrics.
In terms of some big things that we're working on there's a big fare collection job for instance, and New Zealand across the country of New Zealand, we've we.
We've chatted about being Cooper, there's opportunities and DAPL, and there's opportunities and Prague, and we're seeing a pretty good growth and our you know small to mid market expansion and you might remember, we bought yellow rockets and beginning in the calendar year.
And we combine that with some cubic capabilities as well as some moving capabilities you will hear some announcements and coming days, but that's.
Well as well and and our traffic because we've seen we've seen good growth and we expect that so and Ah you might also remember that in order to defense business, we're very thrilled when the high capacity backbone and I think low.
On the last call, we mentioned that that had opened up ER and addressable market of about $4 billion show you know get that capability on lots of platform. So there's growth across the business.
Got it got it helpful. Thanks, a lot guys I'll jump back and if you.
I'll also point out that we talk about the 1.3 billion of unused capacity on sole source I'd I accused that's not and backlog so those will materialize into bookings and into backlog.
Got it.
Okay.
Our next question comes from moving people from all with William Blair. Your line is open.
Rob on from on on Kirsten and good afternoon.
Hello.
Adjusted topic, several times and task.
In terms of a refresher on can you discuss the synergies between your transportation and Defense Division and you know how having both of those divisions fits into your.
2025 plan and you know, whether you plan and a greater synergies and.
Cross fertilization between you know, having no surveillance capabilities for transportation and surveillance capabilities for on defense.
Thanks.
I think your question is insightful Louise so thanks for that what I would say as you know we went down on this one cubic GAAP path and what that has what we've done with that is that's a hybrid sharing strategy where on the one day hand.
On things that are in the businesses that are customer facing our de centralized things like program management, and engineering marketing and so forth, but things that.
Are not customer facing or more support back office, if you will or shared and so we're working hard at improving that sharing even more so things like factory things like supply chain things like our legal department contracts accounting so on.
All kinds of a if you will support functions and we do that so we can scale them and you might also remember we made a significant investment and that's a day. So that we could have one platform across the globe to share common data and so were you know continuing to leverage that.
More and more.
And what I'd also say is there are vivid examples.
Technology and know how that are shared across the businesses. So some examples are the guys and defense are actually better at doing thermal analysis, and the folks and transportation, so they're helping them now which we.
B and birds and also all of the sort.
Sort of user interface for.
The smart apps that were rolling out per transport that product and.
What is done and defense spy and tip that they have a bunch of gamers there who are expert on formed and its a.
And.
She poor I have SAR.
You know some of the mapping capability and the like comes from transportation. So there there are many many things that we share across the business.
And did and and then.
And the only want to say it was set surveillance and others and data analytics capabilities and the engineering and gaming capabilities that you mentioned one more question Brad on last year or it might have and the year before you acquired Nuvo Tronics and at the time you highlighted.
And your vote Tronics poly strata technology for like I G applications and millimeter wave and I was wondering you know just cubic expect you know play a large role in terms of the department of defense is no rollout of Fiveg applications or what was new low tronics, mostly.
Focused on you know commercial applications or I'm, just wondering what's your outlook in terms of.
On monetizing the the new photronics asset thanks [noise] yeah.
Yeah, So where we're using we believe new book Tronics makes the best RF component tree.
In the world millimeter wave type frequencies and so we're in the base station designs, though some key suppliers for Fiveg and we're partnering them to bring those offerings to the department of defense also because the parts.
You know normal our hearts.
And you see with your eyes. These things you need jewelers classes with their one 100 and the size.
And so they're really terrific per space shop locations. So we have some bids out for you know Leo constellations and the like and we're pretty shabby that we're going to expand.
Expand our role and space using new book Tronics those are a couple of examples.
Thanks, Brad and thanks, and Mike that's all that I have.
Our next question comes from Michael.
And since its RBC capital markets. Your line is open.
Hey, good evening, everyone. Thanks for squeezing me on.
Oh I'm looking at some of the looking at some of the early results in defense and you had a few big wins and the fourth quarter and strong profitability and CMS when thinking about the potential of the combined business going forward is.
Is there enough synergy you can drive and this business to be profitable throughout the course of the year and how should we think about you know that the cadence and profitability going forward.
So the profitability and literally from here on here and we will continue to improve year on year, and we expect margin expansion.
You know the timing there is seasonality.
There's there's products from the defense businesses that tend to get shipped out in the fourth quarter and they have very good margin.
So that that will continue but.
But we're very.
Please by combining the two businesses one vivid example.
Where we are today doing.
I Ashar simulation per exercises and we are doing is short for real and so we think they're synergies between those two capabilities as one vivid example.
Got it and then thinking of TTS, you know a lot of conversation around the pressure on your customers and there have been a few comments throughout the year about delays to new business wins, and so when thinking about the budget shortfalls that a lot on the customers who are having and you know.
Clearly there's expected growth next year for your business and we think of the bookings can we expect backlog to continue to grow on into.
Into 2021 or is there a potential and to see a step down before things normalize with consistent ridership.
We expect the book to Bill ratio to be good next year and for backlog to be slightly off as we exit the year.
Perfect and then one quick one for on Shoom on free cash flow is really strong and the year and it seem that working capital was that was the key driver here on can you talk to it there's still room for working capital improvements and and what the outlook is for free cash flow as we look out to next year.
Sure. So the cash flow as you said it was really good for the ended the year, we expect cash flow for the full year fiscal 2021 to be positive, but less than this year and then 2020 two to be extremely positive.
You're from cash we have about $80 million off payments tied to certain milestones.
On certain projects in fiscal 2022, which would significantly drive on working capital down that you are but again next year would be positive probably less than this year and then a very strong 2020 two.
Very helpful and thanks from information Tonight.
Our next question comes from Jim You can see with Needham and company. Your line is open.
And so it's with and they've missed it but could you give that number was at 46 million that you think was the fiscal 20 and pets from cold It was that simple yes.
Yes, the 46 million and as the total impact for Cts that we estimated that include delayed opportunities ridership and a little bit of slow down for the overall company. It was 73 million that we estimated.
Okay and that was my next question I wanted to just get a better idea of how you're.
Sizing the impact on the defense business.
And just in light of what's been happening with the spike around the country.
Is that outlook for the defense business as it relates to the training business say is are you seeing more and then intact.
In Q1 from that.
The spike.
Just happens from <unk>.
Good day evaluating that but there is a general acceptance among a lot of the nations that readiness and suffering and they're trying to start some of exercises and Q1 Q2. So leap day, hopefully, we'll see and recovery in the near term from some of the training exercises.
Okay and one final question for me is just.
With respect to R&D you guys have clearly.
Made some investments and and won some programs as a result of it and I'm just wondering if there's any way we should think about R&D expense.
For fiscal <unk>, 21, and we see that tapering a bit I.
I don't know, how you want to discuss and if theres any.
Color you can give either as a percentage of revenue or just anything you may want to call out on that.
Yeah, So R&D for next year or for fiscal 2021, but would be up to fiscal 2020 appear to be and the 50 million ish range from R&D perspective next year.
Terrific, Thanks very much.
Our next question comes from Ken Herbert with Canaccord. Your line is open.
Hey, Thanks, Brett are on Shimon and just a quick follow up on you said, you're still talking about the 50 to 75 million and incremental EBITDA by 2023 from next cubic initiatives should we think about that is roughly I think you indicated sort of 50% true 50 per.
And due to the sort of top line and the organic initiatives and 50% from a cost standpoint, and that's the right framework to think about that 50 to 75 million.
Yes, that's as Psoc and.
Okay, great and that's it thank you.
Our next question comes from John because its with Citi. Your line is open.
And just a follow up here on just a question on organic growth and so you said down 3% this year and with the guidance for next year and on can you just clarify for us what you're expecting in terms of organic growth in that guide for a for the fiscal year ahead.
Yes, so our on.
And number for next year as all organic God. The sales guide of 1.55 to 1.6.
And as saw all organic up there as I I guess, one extra quarter Appixia on dollar on but that's not material.
Okay. Thanks, and then and then in terms of excuse me covert impact on on the defense businesses at least in this current fiscal year and can you can take out and if you talk about how much on <unk>, how much of that and timing and just there for how much pickup we're getting and F. quite 21 percentage point 20, I guess I just would have expected.
Back to the organic growth number to be.
To be able to be a little bit higher on it.
If you're truly having you know give him given that this year was down three moving you know, that's a really easy comp and heading into next year.
Yeah. So a couple of things one on the transportation side or the ridership impact or the negative impact of coal that.
Still exists. So we haven't sold football would be and are hopeful that a couple of vaccine. So that we've read about but the high efficacy, we'll start seeing some pickup and ridership, but that probably won't happen till the spring or summer.
And then on the defense side of our business up. The you know there were some delayed orders saw a these are too you know.
Especially on the day.
Defense training site, if they're on a couple of your program or the revenue just starts later and continues on later so it's not on one for one acceleration into the fiscal year.
Okay, and I understand and show them and thanks for the clarification I think what I would say as a bumper sticker we expect gross.
A top line and both businesses and bottom line growth at an expense or <unk>.
And much appreciated thank you.
There are no further questions at this time I'll now turn the call back to Brad for closing remarks.
Thank you for joining us today before we sign off.
I want to thank our 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 and cubic thank show very much.
This concludes today's conference call you may now disconnect.
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