Q3 2019 Earnings Call
Greetings and welcome to cubic Corporation's third quarter fiscal 2019 earnings conference call.
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Hey, a question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
I will now turn the conference over to your host Mr. Nielsen Vice President of Investor Relations.
Mr. Wilson 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 Shuman, <unk> Executive Vice President and Chief Financial Officer.
Before we begin I'll remind everyone that our presentation contains forward looking statements that are made pursuant to the safe Harbor provisions of federal Securities laws.
Our most recent SEC filings include risk 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 reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix to today's presentation with that I'd like to turn the call over to Brad.
Thank you Karen.
Thank you everyone for joining us today.
On today's call.
I will start by discussing our third quarter and year to date performance for fiscal year 2019.
Followed by an update on our strategic priorities.
Then I'll turn the call over to and Sherman.
Who will cover the financial results.
Starting with slide three.
Sales for the third quarter were $382.7 million, a 29% increase compared to the third quarter of last fiscal year.
Adjusted EBIT da for Q3 was $30.6 million, a 9% increase compared to the third quarter of last year.
And Q3 adjusted earnings per share were 66 cents, a 38% increase over the third quarter of fiscal 2018.
And Truman will discuss the quarterly financial results in more detail, including the narrowing of our financial guidance.
We're very pleased with our year to date performance with sales up 25% adjusted EBITDA up 26% and adjusted earnings per share up more than 50%, reflecting project delivery on our major transportation contracts.
Strong demand across the mission solutions portfolio.
And the impact of our recent acquisitions.
We expect continued growth based on our high backlog of $3.7 billion and robust pipeline.
A key highlight for this quarter is that our mission solutions business acquired 20% Appixia.
Our commercial technology company that provides high performance platform solutions to manage massive amounts of imagery data.
For the United States intelligence agencies and other customers.
We also have the option to purchase the remaining 80% by February 2020.
Lastly, we're pleased to see that the White House and Congress.
Reached a two year budget deal, which sets defense budget levels.
At $738 billion and 740.5 billion.
Non defense budget levels at 632 billion and 643.5 billion, respectively for F Y 20 and 21.
We see this as a positive outcome.
As it avoid chic registration and it provides stable and comparatively robust defense and nondefense discretionary funding and if white 20 and 21.
Turning to slide four.
We continue to deliver on winning the customer priorities across the business.
Cubic strategic investment in Piccs Ya.
Enhances our mission solutions offering by extending our presence at the enterprise and the edge for defense in the United States Intelligence agencies.
This acquisition aligns with and enables our battlefield cloud strategy, a processing and disseminating data rich actionable intelligence across the enterprise and at the edge of the battlefield in real time.
Pick. She also has come of compelling financial profile with margins consistent with software platforms.
On May 31st Star Transportation team successfully launched on time, the first phase of our one Metro New York or Omni fair payment system at 16 subway station and on buses originating from Staten Island.
Between Thanksgiving this year in October of 2020.
Well effectively install the rest of the entire system.
We're very honored to partner with the New York M.T.A. on this project.
And I am proud of the cubic team for completing this phase on schedule just 18 months after the contract was awarded.
As an update on Boston, we continue to be in positive note negotiations with our customer to reset the program's milestones.
The cubic global defense business recently received and assays certification for our engage air combat training system miniature encrypt or for air combat maneuvering instrumentation or ratio Mike.
And live virtual constructive or LBC training systems globally.
This innovation is a cost effective drop in ready solution that enables secure transmission of classified data for existing global HCM ice systems and for Lv you see systems in an operational domain.
Turning to slide five.
We're making great progress across growth initiatives for each of our businesses.
The transportation team is executing on our mid market strategy by partnering partnering with Dell Iraq to deliver a proposal for an opportunity to Modernise British Columbia's transits fare collection payments systems from magnetic stripe technology to an account base back office that supports contact was payment cards and mobile device payment.
We were recently Shortlisted for and performed our oral presentation for this opportunity.
As we've discussed on prior calls we continue to pursue international expansion in transportation.
Our recent mobile ticketing wins in Dublin establishes a footprint with the customer which could lead to larger system upgrade and services contracts.
During the quarter. We also turned in a good volume of proposals, including in Singapore, Hong Kong and the next generation next bus system in San Francisco.
In addition to several upgrade proposals to our installed base.
We also recently achieved our first international sale of grid Smart with Vick roads in the state of Victoria, Australia.
We continue to be very pleased with the integration and performance of our recent acquisitions.
Our mission solutions business continues to see strong performance and beat out competition on key strategic wins.
We were recently selected as the video data link provider for the F 35 Lightning two program.
Cubic's video data link capability for the F 35.
We will significantly increase the aircrafts combat capability and is essential to the overall F 35 follow on modernization program.
CMS was also recently awarded a delivery order from the United States Air Force for the development and demonstration.
I have a small form factor radio multiple waveform prototype, including our protected waveform boom sling for the Datalink enterprise.
The system is composed of one ground and one air component for improved communications capability, providing ground to air and air to ground real time communications.
These awards followed the recent string of other secure communications contracts, we've announced including the MH 60.
It M Q2 5.
We expect these contracts to lead to larger production contracts and deliver strong growth over time.
We also delivered several Atlas systems.
Which is our integrated offering combining the Gator portable satcom antenna.
Our Ditech Ruggedized network hardware.
Antero logics video streaming capability.
Lastly, we shipped additional Gator systems, which contributed to CMS is strong growth in the third quarter.
And we also now have all orders in backlog.
To meet our expectations in this segment for the full year.
During the quarter.
Our cubic global defense business was awarded several contracts valued at approximately $150 million.
From various customers and the Endo Pacific region.
To provide air combat maneuvering instrumentation training support for combat training centers.
And deliver upgrades and maintenance services for the region's live fire ranges.
Another recent award for CGD includes a $30 million booking for the P. five combat training system.
This system for the Qatari Emiri Air forces Eurofighter toe tiphone position CGD for expanding Aire training opportunities in the region and globally.
Lastly, we achieved successful operational demonstrations and use of our new air combat maneuvering instrumentation planning execution and the after action Debrief digital platform known as spear.
During several United States Air Force Red flag exercises paving way for license acquisition and deployment.
We expect our defense training business to return to growth driven by several opportunities and strategic actions.
Recent wins with such programs such as the Qatari Typhoon Award and the award in Southeast Asia to provide logistics operations and maintenance support services have combined to secure our incumbent position and added more than $90 million to backlog.
Additionally, several international opportunities expected over the next two quarters will facilitate growth.
Led by two program key program wins for our core product lines, which combined will add roughly $100 million in bookings.
With the recent success of our Lv see advanced technology demonstration with the United States Air Force, we have established a mature LBC position for the global Air training market and we are well positioned for the recapitalization.
Of this over 1 billion dollar market.
Lastly, we continue to develop innovative training technologies and we'll make available in fiscal 2020.
Two platform initiatives for human machine performance assessment and game based training delivery for global defense government and commercial markets.
On slide six.
We continue to drive our mission of living one cubic or sharing strategy to enhance value.
We've highlighted several examples here and I'll touch on a few.
This year, we have been working towards our launch of our product lifecycle management or PLM system.
The biggest benefit a PLM per cubic is the ability to share technical information and data amongst our engineering teams and the overall company using disciplined workflows.
This is expected to result in increased quality and cost savings across the organization.
As we enable our engineers to access drawings and data in a single easily accessible location and begin to standardize design practices and specifications across our products and engineering teams.
Another one cubic example is our new try reader for Validator.
Which is the device at the forefront of our next generation fare collection systems.
This innovation was developed through engineering collaboration across all three businesses.
Our defense and transportation teams are also collaborating on a project with our network rail customer in the United Kingdom.
The objective with this project is to de risk a large scale track and station renovations through real time tracking and situational understanding a project assets location to improve overall project delivery of their track renovation.
Nextel Alaskan schuman to describe our financial results in more detail.
Thank you Brad.
Please turn to slide seven to cover the financial highlights for the quarter.
Sales in Q3, the 383 million up 31% year over year on a constant currency basis, driven by organic growth from transportation and mission solution and the impact on traffic, where and grid smart acquisition.
The impact from the new revenue recognition standard as C. Six so six had a favorable impact on quarterly sales of 15 million, including the Boston project.
Excluding Boston as sea sick, so six impacted sales negatively by 5 million.
Adjusted EBITDA for the quarter was 30.6 million, an increase up 11% on a constant currency basis.
Adjusted EBITDA margins are down year on year, primarily as a result of investments and mission solutions to drive future growth and a tough comparable strong Cts margins in Q3 last year.
Adjusted EPS increased 38% to 66 cents per share.
Free cash flow was $32.9 million in the third quarter and adjusted free cash flow, excluding the impact of the Boston consolidation was 52.5 million.
Free cash flow was supported by the milestone payments related to the New York on tract as well as 45 million and net proceeds from the sale of real estate in San Diego and Orlando.
Including the real estate sale proceeds in free cash flow is consistent for the treatment of capital investment.
And our facilities in recent and future years, which also helped enable the real estate sales.
We expect further improvement in the fourth quarter, driven by shipment and our mission solutions business and the additional milestone payments and transportation.
Turning to slide it.
We continue to optimize our real estate by 2020 , one we expect to reduce our real estate footprint by approximately 15%.
Got to our owned real estate by more than half, while providing our employees, but the modern cost effective environment.
In June we announced the sale of our San Diego County, Mesa, and Orlando campuses for 45 million to further rationalize our real estate footprint.
Slide nine provides a summary of the third quarter consolidated results.
Which I've mostly covered already.
I'll point out that last year's Q3 bookings included 276 million from the bread, It's been transportation Systems Award.
Beginning last quarter, we added adjusted earnings per share to improve our financial disclosure and guidance.
Adjusted net income for the third quarter was 20.7 million or 66 cents per share compared to 13 million or 48 cents per share in Q3 of last year.
Mainly driven by higher adjusted EBITDA, and lower taxes, which more than offset higher interest expense and a higher share count year over year.
Moving to the transportation segment results on slide 10.
Sales grew 32% on a constant currency basis, driven by the New York, and Boston recollection projects and the inclusion of traffic, where and grid smart adjusted EBITDA margins improved sequentially from Q1, and Q2 back to a downwards since Q3 of last year, which was the strongest quarter for Pts in fiscal 18.
And higher than the Pts its full year margins for fiscal 18.
Adjusted EBITDA is expected to increase meaningfully in the fourth quarter driven by continued ramp on the larger projects, including manufacturing spend and we expect full year margins to improve year over year.
Moving to slide 11.
Mission solutions business reported another solid quarter with robust growth in bookings across the portfolio.
Sales more than doubled compared to the third quarter of last year as growth increase across all product lines.
Adjusted EBITDA margin reflects the accelerated recognition of costs for a new contract award and protected communications totaling $1.3 million and continued investment in new technologies, including I.S., our systems totaling 1.8 million.
Excluding these investments adjusted EBITDA margin would have increased year on year.
Turning to slide 12.
As we've discussed on prior calls this fiscal year performance and cubic global defense has been impacted by the delay up international orders.
We expect improvement in both sales and EBITDA in the fourth quarter, driven by recent order activity and additional Q4 orders.
Turning to slide 13, as we approach the fiscal year end, we are narrowing our full year guidance.
We expect fiscal 2019 failed to be in the range of 1.44 billion to 1.48 billion.
Adjusted EBITDA.
We are narrowing the range 245 million 255 million.
Maintaining the same midpoint and the prior guidance.
And the adjusted EPS range of $3 to $3.35 a share.
Reflect the narrowing of adjusted EBITDA.
As we've said on prior calls we expect a strong fourth quarter driven by the project ramp up in FY <unk>.
Shipment and mission solutions and improvement in defense training business.
Now I'll turn the call back over to Brad.
Turning to slide 14.
In summary.
We delivered strong revenue adjusted EBITDA, and adjusted EPS growth year on year as well as improved free cash flow.
Year to date mission solutions and transportation delivered robust sales and we continue to expect defense training to return to growth.
With our recent wins as well as upcoming opportunities for our live virtual constructive solutions and expected near term international orders.
Our investment in Piccs Ya brings technology, driven market, leading solutions to manage massive quantities of data.
For the United States intelligence agencies and other customers.
As we enter the final two months of fiscal 2019.
We remain focused on meeting our commitments.
We remain confident in our full year outlook driven by our planned schedule on our major transportation projects improvement in defense training and our expected shipments and mission solutions, all of which is in backlog, giving us good visibility in CMS.
Now lets proceed to the Q and a session.
At this time, we'll be conducting a question and answer session.
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Our first question comes from the line of Jon Raviv from Citigroup. Please proceed with your question.
Hey, good afternoon, everyone.
Hi, John .
Hey, it Brad I'm encouraged him on on on the CMS performance and clear. So the this question sort of refers to sales and margin I know, it's a very it can be a very lumpy business was there any sort of timing benefit or pull forward on the sales line in threeq versus Fourq of this year and then also on the margin you just go through some of those adjustments and sort of you know how should we continue to expect to see those sorts of adjustments going forward in terms of bringing on new contracts or or do these sorts of just a just a reflection of the maturity level of some of these projects and you know heading into 2020 and beyond.
Things will smooth out there.
Yeah. This is Brad there was some sales or we got done in the third quarter because as you know we had regular order this year.
And we got the orders or earlier and so we were able.
To ship earlier, having said that we'll continue to see great growth in the fourth quarter, and we would expect to have margin expansion.
In the fourth quarter.
You know similar to last year.
John on your point on the onetime investments stop the investment for the contract that we talked that was more of a onetime expense very basically as we booked the contract all the cost to deliver the initial.
Units were taken upfront as we gotta incremental orders these will be high margin incremental orders in the future.
And then Shimon can you just following up on that point can you just follow add some perspective as to why that the a little surprised that the economic model. Here is you know is the customers are saying, Hey, you guys pay for it upfront we'll get you back later why this what does that what does that expense will fall on the all in one quarter.
So when you when you enter a program you've got the initial production orders, which are a few units. So you have to pick the cost of development on these initial units and charge it to the project, which leads to a forward loss position. All the units you get for delivery. After the initial delivery are at very high margins because the cost of the R&D is already we've already been expensed or the initial production order dog. For example, you might get 10 units of delivery. Initially on a program that will have a few hundred after that all of the cost of the R&D went through the first few 10 units and the good example.
Okay. Thanks, I'll hop back in the queue.
Our next question comes line and Jim Ricchiuti from Needham and company. Please proceed with <unk>.
Thank you good afternoon.
Oh, Hello, Brad can you provide us with an update on the major transportation contracts, where where do you stand with Boston, How is New York progressing and what's the pipeline look like for some of the other business that you're.
Pursuing.
So as you as you know Jim we rolled out a the first milestone in New York on time and the next portions will go from Thanksgiving through the next couple of years. After that the project is proceeding well the customers very happy in Boston, We're renegotiating some of the milestones or the customer.
Once different equipment sats, some related to their public policy with regard to their distribution network. So we're working with them in a positive manner. Bruce spend is a is ramping up as you would expect and San Francisco as well. So we'll see a great growth in that business are based on our backlog things or things are going well in terms of getting new orders and new backlog I mentioned in the call that a we put in some fairly sizable proposals in both Singapore and Hong Kong.
We're working hard on our mid market strategy talked about some effort in a in Canada.
We won an order in Dublin in terms of Big cities, you know Singapore is large Hong Kong is a is large we've talked about Toronto. That's also a large.
And we're very fortunate that we have this very large.
Base, a business and we're going for providing proposals to our customers for upgrades that are sizable as well so.
We would expect.
Hmm you know next year to book quite a bit of business.
That's helpful and if I could just change gears for six and a second can you talk a little bit.
About the investment in Piccs here and what how this perhaps fits in.
With the the broader CMS portfolio.
I'll talk about the fit and we'll let in Sherman deal with the economics.
Oh I'm. So as you know we made a bad in CMS on what I call. The insatiable appetite for full motion video a picture is worth a thousand words, a show that we can help our military have awareness of what's happening on the battlefield.
As you know we have distribution systems would teralogics, we have satellite systems to move these things around we have networking systems and so it all fits and moving full motion video around we know that post 911 full motion video we wanted to provide to Sargent Jones for instance on the other side of the building and a care our counterterrorism play what Appixia provides is there.
They are doing the.
Processing and storage and retrieval of very similar data called wide area motion imagery, and so wide area motion imagery is like taking a picture of a big swath of Citi.
And then when you see something of interest you take this soda straw if you will and you take full motion video of it. So it's sort of like helping you understand what's going on and a big swath of the area and then using our full motion video. So I don't want to call it Ham and eggs, but they're very much related.
Got it and then on.
Please on the economic I had as we mentioned earlier in the prepared remarks, the bottom 20%, we have an option to get the remaining 80% of the business. The business side. It's a good platform software platform like margins business is growing and the multiple on 2019 earnings is going to be very attractive.
And I might also add.
It was probably noticeable but in schuman did a terrific job of rationalizing our real estate footprint and those proceeds that you could argue warrant earning that good of return have been parlayed into a business that will have software platform kinds of margins so great for shareholders.
Okay. Thank you.
Our next question comes line of Ken Herbert from Canaccord. Please proceed with your question.
Hi, good afternoon.
Hi, Ken.
Yeah, Hi, Brad I, just wanted to first ask it sounds like you've got very good visibility on the full year 2018 expectations with tightening the guidance range and unlike in prior years about 50% of your EBITDA is going to come in the fourth quarter are there any areas you'd you'd specifically highlight as as risk areas. As we think about the fourth quarter or you know if the timing of the budget in there is in fact, a CR or is there anything else in particular you'd point to that could be a risk or is it is the confidence level very high on the fourth quarter and that's the full year.
Confidence levels very high all in backlog teams working day and night to push it through.
Okay, Okay, that's great and if I could on some on I just wanted to ask on on the cash flows I mean, it looks like this year with the projects and.
And everything there is a very significant sort of investment in working capital and and the businesses is is really using a lot of cash at least through the first nine months of the year, how should we think about that maybe in the fourth quarter and I know you don't typically give guidance on this but then I guess more importantly, as we think about transitioning from 19 to 20, where do you see you know sounds like working capital could be a big opportunity, but where do you see the opportunities to drive improvement here, specifically as we transition into 20.
Got it thanks, Ken so going into 20 I didn't mention first for fiscal 19 on the golf ball, we expect a cash flow to be positive in Q4, again, and then going into it when do we expect it to be positive for the year also given the fact that a wheel.
Have lot of the milestone payments from our big transportation contracts coming in Brian talked a little bit about the schedule. There. We've made good progress, but production milestones that lead to guy so they'll be positive cash flow from that and also but the defense budget. What happens is if we can get the orders early and start to be able to convert a lot of inventory into it.
Steve of that into cash, which we also expect some cash to come in from August deliveries in September for example, this year. So overall boat.
Definitely a better yet and 2020 from cash flow perspective, as we introduce our working capital again.
Okay, that's great and at the risk of maybe getting too far out ahead here is there is there a.
The way, we should think about conversion either on a on a on an adjusted EBITDA basis for free cash flow you know as this business gets too.
A more normal level is that any kind of numbers on some on your prepared to be prepared to put out on a on a conversion basis.
Oh I'm sorry.
You know given that better project business. There there are a little bit of lumps on a year to year basis. So if you start thinking on two or three year horizon from a cash flow perspective, there's no reason why we shouldn't be converting our net income into cash that given our amortization that gives us some contingency for growth in the business as we continue to grow we have aggressive growth targets. So that that's a good way to think of it in two or three year chunks.
Perfect. Thank you very much.
Our next question comes line of Mark Strouse from JP Morgan. Please proceed with your question.
Yeah, Hey, Mark Thanks for taking our question say, Brad how are you doing.
So I wanted to follow up on the on Jims question on Boston.
Then I'm just I understand the you know things can change in a.
Negotiation, but.
On a net net basis are these changes that could potentially add to the value of that contract or is this potentially something that would eat into labor costs.
They will add to the value of the contract.
Okay.
Okay. Good here.
And then with a with pixel.
I understand you're not quite ready to give a lot of detail there on the financials, but.
Is there a material contribution to.
The fiscal fourth quarter to the remainder of fiscal year 19 guidance.
There's actually no contribution to the fourth quarter guidance, because we account given we've only bought 20% will account for under the equity method and in our adjusted EBITDA, We don't count a equity income as adjusted EBITDA. So from an adjusted EBITDA perspective, it won't be material there will be some impact.
Do our GAAP EPS, obviously positive impact to our GAAP, yes.
But on a longer period of time or it will have a very positive impact to cubic.
As we buy the rest of the company.
Right understood. Okay. That's helpful. Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Louis Dipalma from William Blair.
Please proceed with your question.
Hi, Lorraine, Yes, Hello, good afternoon.
Everybody.
Hi, Brad.
Should the future bookings instigated.
Can you can you hear me.
I can hear you fine.
Should the the bookings associated with the live virtual constructive product line.
And the recent international wins drive an inflection to positive defense training growth for the full fiscal 2020 year next year.
Yes.
Great and for auction mine you just mentioned in one of your answers that you expect positive free cash flow generation for next year, what are the specific transportation milestones in Boston and New York City that we should be looking out for that you're expecting to receive.
So a lot of them will be so we did beneficial use one for New York, we'll have the next beneficial use and that was before the deliveries and as we deliver we're going to start getting cash on those and Boston they'll be production Java job funds. We go up to full production on the hardware that would be milestones.
And for the other projects also above you know as we get into the.
Milestones up production as we get into the initial phase delivery of the projects all of those come with milestone payments that help with our cash flow and reduce it not working capital.
And shed San Francisco, and Brisbin have any major cash impact for fiscal 2020.
Not material.
And the next anyway.
Okay and.
Investors often ask.
What the future market opportunity available for.
Cubic is after you guys have already won.
Large contracts for New York City, London, San Francisco, Chicago, Boston et cetera.
In the scripted remarks and in the Q M&A, you referenced opportunities in Dublin, Singapore, Hong Kong, and San Francisco and met coal at the recent New York Stock Exchange presentation also referenced that he expects.
Toronto to come up for bid next year collectively what is the potential size.
Of all these new opportunities and do you think.
The size of these new opportunities is as big as your same store sales from all of your existing customers.
It will be very significant of course, we're in a competitive.
In the aggregate.
So it will be very significantly.
Thanks, and lastly, I think the other important piece as well as Brad mentioned as our installed base upgrade which can add significant bookings and revenue also for us in the future.
Thanks, Lou we were going to continue to grow this business significantly.
Yes.
Yes, and investors and now they're looking at.
The future market opportunities and you listed a lot of them I think you referenced.
Philadelphia, and Toronto is two big ones and we've been getting a lot of questions on when those could be material.
For you guys and what's the opportunity for you to show some old somebody at center Luis.
Sorry, let me sum will start next year for sure and some thereafter, but.
Oh, there'll be great opportunity to grow and as you know we're working hard in the mid market as well.
You know thats, a relatively new market for us.
Sounds good.
Thanks.
Our next question comes from Jon Raviv from Citigroup incorporated. Please proceed with your question.
Hi, Thanks for taking the follow up guys.
On the so we think we can all appreciate.
Kind of the story behind are offering up goal 2020.
I was wondering if you could think about how that story might evolve as we do approach 2020.
What are the parameters the way you think about the business over over a couple of more years and when you might think you might to communicate if at all those sorts of multiyear goals.
Stay tuned for the next call in November .
But I would well what I would say is.
As you know, we hired a chief digital officer, and we're working hard at trying to create digital product forms sellers last two a great. The revenue growth of our existing businesses and we believe there is significant opportunity there to do that.
So what we'll talk about that in the November call.
I appreciate that Brad.
Oftentimes when we thought on on display this quarter, but often times and you make investments to accelerate growth sometimes it does come at the expense of profitability and with all the opportunity you see in the market.
Chief Digital officer is there a chance that and just the profitability the business could stay.
Ill flatter for long overdue.
Harvest some of those returns or.
That kind of business or or is this or do you kind of view this as an accelerating growth and accelerating profitability type business as you roll out these new business models so to speak.
We think the latter.
We had a few words I appreciate that right and then and then the last thing for me is just on the mid market at Cts.
I think.
I think we've been on the impression that that could be a good margin since it's kind of a lot of rinse and repeat so to speak about to minimize the complexity, but.
Thats doing things over multiple places.
Well in your as you move into this strategy. What are you seeing in terms of potential returns in the mid market, including how things are structured with with Dell rock.
As you pursue that opportunity. Thank you.
Yes so.
We believe that there is an opportunity to create platforms.
To provide a fair in information services.
In.
Middle market cities.
Middle market cities.
Generally don't have a lot of Capex and we believe we'll be able to scale within the cloud and.
Take a piece of Opex. So we can provide these services and of course one.
Engineering is done.
Or nearly done the cost too.
Add another city aren't that significant and so the revenue function should go up at a much higher clip than the cost function.
And the strategy in terms of bidding with Dell rock.
Yes, So Joe rock is one of the pieces.
There are some other things that we're working on.
As you know we have this outfit called next bus and we've been doing some artificial intelligence machine learning algorithms.
To have a better gas about one the boss is going to show up.
We've been working very hard on our.
Mobile app offering we've been working on our platform.
We've been working on some things.
Related to other adjacent revenue streams associated with that.
And so we see it as a great opportunity.
So we should put this under the category of sort of this level sale synergies from the acquisitions that you've made.
Yes, I think I think thats right.
But also I think.
The business model is a little bit different in the sense that it would be.
By the fair based as opposed to.
You know put a system in and get paid for that and so every every time someone would take a ride quote unquote or take a journey.
The revenue meter would click.
Understood. Thanks, Thanks, a lot for the extra time there Brett.
Thank you Sir.
We have reached the end of the question and answer session and I will now turn the call over to Brad Feldmann for closing remarks.
Thank you.
We are pleased with our progress to date and we remain very focused on meeting our commitments in the fourth quarter.
Thank you for joining us today on the call.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.