Lionheart Holdings
Q4 2017 Earnings Call Transcript

Published: 21 Nov 2017

[Operator:]

Ladies and gentlemen, welcome to Cubic Corporation's Fourth Quarter Fiscal Year 2017 Earnings Conference Call. At this all time, all participants are in a listen-only mode. Today's webcast includes a slide presentation as part of the formal presentation followed by a question-and-answer session. Please note that Brad Feldmann, Cubic's President and CEO will have late breaking news at the end of today’s call. You can advance the slides by using the left and right arrows located in the upper right hand corner of your window. [Operator Instructions]. As a reminder, this conference is being recorded. If anyone has any objections, you may disconnect at this time. Now, I'd like to turn the call over to Diane Dyer, Cubic's Director of Investor Relations. Thank you. You may begin.

[Diane Dyer:]

Thank you, operator. Hello, everyone, and thank you for joining Cubic’s webcast. Today, after market closed, we reported our fiscal year 2017 results. We encourage you to refer to the Company's press release and the most recent reports filed with the SEC as well as today's presentation slides. You can access these documents on the Investor Relations tab of Cubic's Web site at www.cubic.com, or on the SEC's Web site. On today’s call, Brad Feldmann, Cubic's President and CEO; and Anshooman Aga, Executive Vice President and CFO will comment on Cubic’s fiscal year 2017 results. Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that during this call, Cubic management will be making forward-looking statements about future events or Cubic's future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the Company's business. These forward-looking statements should be considered in conjunction with and are qualified by, the cautionary statements contained in Cubic's earnings press release and SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. This conference call contains time-sensitive information that is accurate only as of the date of this broadcast, November 20, 2017. Cubic undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. This conference call also includes a discussion of non-GAAP financial measures as that term is defined in Regulation G. Cubic believes this information is useful to investors because it provides a basis for measuring the Company's available capital resources, the actual and forecasted operating performance of the Company's business, and the Company's cash flows. Any discussion of non-GAAP financial measures is not intended to detract from the importance of comparable GAAP measures. Having said that, I'll turn the call over to Brad Feldmann, our President and CEO.

[Brad Feldmann:]

Thank you, Diane. Thank you everyone for joining us on the call. Today, I’ll be providing a summary of our fiscal year 2017 financial performance, a review of our recent investments and an update on our strategy. I will also be sharing some insight on our highly valued New York City Fare Payment System Award received in mid October. Then I will hand the call over to Anshooman Aga, our New CFO, who will discuss our financial results for the quarter and fiscal year in greater detail. Starting with Slide 3. To recap the fiscal year results, we have record sales for the fiscal year of $1.486 billion compared to $1.462 billion last year, net of $20 million in foreign exchange headwinds and up 3% on a constant currency basis. We also had record quarterly sales of $445.6 million in Q4 and very strong adjusted EBITDA of $50.2 million. For fiscal year '17, adjusted EBITDA was $105.6 million compared to $118 million last year, net of $1.9 million foreign currency exchange headwinds and $20.7 million of additional R&D investment. We are pleased to report that our adjusted EBITDA is in line with our fiscal year guidance. Increased C4ISR product sales and mission support solutions and improved financial performance in our transportation segment drove strong results in the fourth quarter. We also had very strong order intake in Q4 and ended the year with book-to-bill ratio of 1.07. With the announced win of the New York City Fare Collection contract in October, we now have the highest backlog in the company's history. We are very pleased with our Q4 financial performance and I wish to thank our great team for their hustle in winning the customer, one of our key strategic priorities which I will touch upon a bit later. Now on to Slide 4. I'd like to take a minute to step back and provide some context on our mission and technologies so I better can explain our strategy and how we're choosing to invest in Cubic's future. Here at Cubic, we have a common mission across our businesses. Ultimately, we seek to provide our global customers with better information or situational understanding so they can make better decisions. For our transportation customers, this means reduce -- reducing congestion in cities and making the daily lives of the commuting public more efficient. And for our military customers, this means driving, improved mission effectiveness, and operational readiness. Our solutions enable this increased situational understanding in cities, the battlefield, and training environments. We provide instrumentation to understand the environment, communications to transmit this understanding, cloud computing to process this understanding, algorithms and simulation to gain keener insights, and data visualization so our customers can apply this gained understanding effectively and efficiently. This common mission in our integrated cutting-edge technologies allow us to share know-how, processes, infrastructure, and people across our business units. Turning to Slide 5. We’ve made significant investments in the past years in these technologies and are welcoming their imminent payoffs. A great example of this is our recent win in New York. We’ve spent the past year and a half working on our bid, including investing $6.4 million on engineering capabilities in our back office validator and reader solutions, and we're very proud that the hard work and investment has paid off. Shortly after the close of fiscal year '17 in October, we were thrilled to announce that Cubic has been selected by New York Governor Andrew Cuomo and the New York Metropolitan Transportation Authority to replace the iconic Metro card with a proven next-generation fare payment system similar to that used on bus, tube, and rail services run by Transport for London. In fact, Transport for London partnered with us to win the MTA solution. Our extensive pre-contract engineering investments greatly benefited our bid and relationship with the MTA. The new system will allow customers to create personalized transit accounts to securely see ride history, check balances, and add funds. Our solution and our partners statewide will provide fare media, streamline fare collection, and phase out costly twenty-year old equipment. Ultimately, the new system will provide customers a more integrated travel experience across the region, including the Long Island railroad and Metro-North rail. Cubic's win in New York reinforces our position at the forefront of the worldwide shift to easy-to-use seamless and open payment methods. We are confident this win will lead to more major agency implementations that upgrade or replace existing systems to improve the lives of millions of travelers and enhance the efficiency of their operations, and the benefit of our investments will only continue to multiply. Turning to Slide 6. We are pleased with the critical strategic investments we're able to make in all our businesses this fiscal year. During fiscal year '17, we increased R&D investment by $20.7 million to develop technologies that we believe will help accelerate our strategy and goal 2020. I’d like to provide you with some detail on where the R&D investments are going in each area of our business. In transportation, these investments are focused on shifting from a program centric company to a new generation product centric company. These innovations include NextBus 2.0, Advanced Mobile, Open Payment and Cloud technologies. As we just discussed, we're seeing a return on our investment already with the New York award. In C4ISR, we continue to develop Halo, our software definable antenna technology that will bring network wideband communications to our Department of Defense customers. We're pleased with the resulting recent JCTD win to support the development of the joint area layer network. We are experimenting with some concepts to offer ISR as a service to our customers. We have completed the successful operational tests for the U.S. Army Transportable Tactical Command Communications program or T2C2. We expect a decision this winter to move from low rate initial production to full rate production on T2C2 driving further growth. In defense training, we've invested in combining training and gaming technologies to support the United States Navy's Littoral Combat Ship program with the creation and delivery of immersive game-based courseware that can be used to support other ship classes and platforms. We are also developing an intelligence surveillance reconnaissance and social media synthetic environment for the courseware, which increases training environment complexity and we're utilizing augmented reality to enhance training fidelity. These core investments position us for strong organic growth. Our superior solutions are driving global customer demand because we're focused on our customers most pressing needs. And with respect to internal initiatives, our investments in GEM and SAP are ensuring all the data that runs our business is in one place and we are utilizing a common process to drive effectiveness and efficiency. Next on to Slide 7. I want to briefly discuss how our investments are serving humanity. After hurricanes Harvey, Irma, and Maria, devastating Houston, the Virgin Islands and Puerto Rico, our GATR team deployed its satellite antennas and personnel to support disaster recovery operations. Our expeditionary communication specialists were among the first to arrive in storm ravaged areas and set up communications infrastructure to enable rescue and recovery operations using GATR suite of solutions. With local communications lines down, our antennas provided Internet connectivity for clinics and hospitals and made it possible for civilians to notify others about their safety. We are very proud and thankful to have been able to connect people to their loved ones after these natural disasters. Turning to Slide 8. I would like to provide an update on our strategic priorities. Under Goal 2020, we're well on our way to becoming the global market leader in our transportation and defense C4ISR in training markets, achieving $2 billion in revenue, growing at 10% plus, with 10% plus operating margins, by executing on our five priorities of winning the customer, building NextCity, C4 ISR, and NextTraining globally and living One Cubic. On slide 9, winning the customer is the core of everything we do and the innovation is critical to the growth of the company. Our competitive edge and thought leadership and transportation has greatly increased and our strong customer relationships continue to generate contract awards. We are also combining capabilities and our C4ISR business to deliver innovative customer solutions. The Department of Defense recently approved the mobile unmanned demand distributed lethality, Airborne Network, Joint Capability Technology Demonstration, MOD Land JCTD that will leverage our ongoing investment in our wideband communications solution, that enables the Joint Area Layer network. With our selection, our multi-your investment in this capability has paid off in a major way. Additionally with our investment in combining training and gaming technologies, Cubic Global Defense has received four additional delivery orders, totaling $29 million to support the United States Navy's Littoral Combat Ship, LCS with immersive game-based courseware. On Slide 10. We're continuing to build NextCity globally, with the success of OneAccount, an enterprise back office system that transforms the customer experience and enables the introduction of new forms of card and mobile base payment and information. Earlier in the year, we expanded our OneAccount footprint with the contract award for the U.K.'s Abellio, ScotRail and our strategy is further validated by our win in New York City. There is a rise in demand for open payment systems across our transportation customer base and we're well-positioned for bids in Boston, Brisbane, and San Francisco. We remain extremely confident, our OneAccount solution leads the markets demand for advanced cloud-based back office systems. Emphasizing our strong relationship with Transport for London, our contract to provide services to London's Oyster and Contactless Ticketing system has been extended for a further three years until 2025. Cubic will continue providing operational and maintenance services to London's Oyster and Contactless Ticketing system, investing in further innovations to the benefit of TFL's customers as well as delivering at least $26 million in guaranteed savings to TFL. In mission solutions, GATR's, Army Transportable Tactical Command Communications or T2C2 program completed operational testing earlier this fiscal year. We continue to see accelerating demand and we anticipate the customer will proceed with a full rate production decision this winter. Additionally, we are partnering with a platform provider to offer our new Intelligence as a Service business model to support the DOD's expanding needs for real-time intelligence. We continue to build our NextTraining capability by developing and delivering innovative and integrated systems that facilitate and provide performance-based training for the U.S and allied nation militaries. Due to our position as a leading provider of instrumented combat training centers worldwide, we have received a contract award worth $26 million from a customer in the Asia-Pacific region for the delivery of three mobile combat training centers. Cubic will provide its latest generation laser-based simulation equipment for dismounted soldiers, vehicles, and numerous weapon configurations. This contract also includes the implementation of communication system components, after action review capabilities and exercise control system integration. During Q4, we also supported the United States Navy in opening the first Littoral Combat Ship, LCS training facility in San Diego. We're experiencing increased interest in performance-based training with the successful delivery of the initial Immersive Virtual Ship Environment, IVSE courseware that will help train thousands of sailors to gain competency in their shipboard duties. We are confident there will be further demand for our virtual courseware. We have delivered 297 airborne instrumentation systems on the Joint Strike Fighter program and have another 211 backlog to deliver by 2019 with potentially more than 2,000 systems to follow. We continue to make great progress on our Air Combat, Live, Virtual, Constructive LVC training contract with the Air Force Research Lab. This contract represents the future of the air combat maneuvering instrumentation market as it will allow synthetic entities to be played in the cockpit and enhance the training effectiveness and efficiency of fighter pilots. Finally on Slide 11. We are 80% done with our ERP implementation under our living One Cubic priority. We will finish our implementation soon in fiscal year 2018 and anticipate a 2% to 2.5% margin lift by fiscal year '19. Along with improved employee engagement scores across the business, our teams in transportation and defense are working together on engineering solutions. For example, our TR4 card reader and our New York Transportation bid utilized the expertise of our defense engineering team. The expertise in our common technologies allows us to share resources and deliver the most innovative solutions to our customers. Next I will ask Anshooman Aga, our CFO, to describe our fiscal year 2017 results in more detail. As you know, Anshooman joined us earlier this year from AECOM and became our CFO on October 1. His presence and new perspective has already made a great difference in Cubic's executive suite. We are delighted to have him on board.

[Anshooman Aga:]

Thank you, Brad. Before I get into the details of the financial results, since this is my first earnings call, I wanted to take the opportunity to say that I’m excited to be part of the Cubic team and it has been a pleasure getting to know my colleagues during the past several weeks. I've also have the chance to meet with many of our investors and analysts since I joined Cubic and look forward to getting to know many more of you in the coming months. And now on to the discussion of the results. Please turn to Slide 12, to cover a few of the major highlights in Q4. We had strong execution in Q4 across our business. The quarter sales which I will discuss in greater detail in a moment, reached a record high and adjusted EBITDA was also near an all-time high. With $50.2 million in adjusted EBITDA in Q4, we achieved our full-year guidance. As Brad already mentioned, we won the much anticipated New York Fare Collection contract. The $554 million contract was signed in October and will be reflected in our Q1 fiscal year '18 results. We paid down an additional $50 million in debt in Q4. This pay down was enabled by our focus on free cash flow and further repatriation of cash in a tax efficient manner. With additional debt pay down in Q4, our full fiscal year debt reduction was $186 million. As we continue to invest in our business, we are ensuring that capital allocation decisions are being made in a highly disciplined manner. We are taking a strategic analytical approach to distribute in discretionary spend in R&D and SG&A. The businesses that we’ve determined have the highest shareholder return potential are receiving the bulk of our investment dollars. We’ve also initiated steps to rationalize a real estate portfolio and have listed two of our properties for sale. Finally our SAP ERP implementation is progressing well and we expect it to be substantially complete by midyear 2018. Turning to Slide 13. Q4 sales were up 10% on a constant currency basis supported by growth in the transportation and defense systems segment. Adjusted EBITDA at $50.2 million was up 38% compared to Q4 of the prior year, driven by product shipments in our C4ISR business along with strong program execution in the rest of the business. Q4 free cash flow was $28.7 million and earnings per share were $0.49. From a full-year perspective, sales were up 3% on a constant currency basis. Adjusted EBITDA at $105.6 million was impacted by $20.7 million in incremental R&D investment compared to the prior year. Free cash flow of negative $13.3 million included $51 million in ERP and strategic IT related costs, both in terms of capital and operational expense. The earnings per share were negative $0.41 for fiscal year '17, also impacted by $34 million of ERP operational expense. Moving to Slide 14. The transportation segment delivered strong performance across key metrics in Q4. Bookings and sales were up 77% and 9% respectively on a constant currency basis and adjusted EBITDA improved 410 basis points driven by good program performance and favorable project resolutions in line with our expectations. From a full-year perspective, the bookings were $789.5 million and sales were $578.6 million leading to a book-to-bill ratio of 1.36 that will support our future growth. Adjusted EBITDA was down compared to the prior year due to the incremental R&D investments of $10.7 million, which have helped position us as a market leader and the engineering investment in the tolling contract that we disclosed in our Q3 results. Moving to Slide 15. The Defense System segment delivered good results with bookings, sales and adjusted EBITDA growth both on a quarter-on-quarter basis and on a year-on-year basis. Our investments in the C4ISR business are starting to pay-off. The C4ISR business grew 54% in fiscal year '17 and both the training and C4ISR sub businesses had higher adjusted EBITDA in fiscal year '17. Also noteworthy, the full fiscal year adjusted EBITDA was 10.2% of sales, just below our 2020 margin target levels. Turning to Slide 16. The Service segment delivered a 10% increase in bookings in Q4. Adjusted EBITDA was up slightly on a 1% decline in sales. From a full-year perspective, results was below prior-year impacted by the budget delays, program mix and competitive market pressures. Moving to Slide 17. We continue to be optimistic about the momentum building in our business. For fiscal year '18 guidance, we expect sales to be between $1.51 billion and $1.56 billion and adjusted EBITDA to be between $110 million and $135 million. The midpoint of adjusted EBITDA reflects a 16% increase compared to fiscal year '17. We anticipate that adjusted EBITDA seasonality will be similar to fiscal year '17. The first half, specially Q1, will likely be impacted by the continuing resolution. Additionally, the timing of the U.S government discretionary spend favors a strong final quarter for our C4ISR products business and ramp up of the New York contract will reflect a bell curve during the duration of the design build contract with a steeper ramp in fiscal year '19. Finally, starting with Q1's reporting, we plan to break out the C4ISR Mission Solutions business as a separate reporting segment. Mission Solutions have been the focus of acquisition spent in the past three years and separate reporting will enable us to highlight the segment strong returns. Now back to Brad for the final summary.

[Brad Feldmann:]

Thank you, Anshooman. Turning to Slide 18. In summary, our strategy is bearing fruit and we remain confident that our investments will yield accelerating growth and expanding margins for Cubic in fiscal year 2018 and the coming years. We are very pleased with the very strong finish to our fiscal year led by C4ISR product shipments, improved transportation business performance, and strong order intake. Our ERP implementation is advancing on pace and will provide us with a solid foundation for first-class processes and efficiency. We anticipate solid organic growth throughout fiscal year '18 with the New York City Fare Payment System award, further expansion in the fare collection market with our OneAccount technology advantage and with the transition of the T2C2 program to full rate production. In closing, I'd like to thank my Cubic teammates for their hard work and many contributions to increasing shareholder value and to the investor community for our ongoing partnership as we continue to grow Cubic. Before moving to the Q&A session, I'd like to share some recent exciting news. We're pleased to announce that last week Cubic Global Defense was awarded the contract to provide mission support at the United States Army's Joint Readiness Training Center, JRTC at Fort Polk Louisiana. We’ve been the incumbent at JRTC for the past 15 years. Winning this major re-compete contract is a testament to the high quality training we provide the United States Army, other DOD services and militaries of Allied nations who come to train side-by-side with U.S troops at one of the world's premier combat training centers. The total contract value is $325 million over five years. In addition to the defense contract, I’m thrilled to announce that we received word today that the Board of the Massachusetts Bay Transportation Authority has voted to approve a contract award to Cubic Transportation Systems for $575 million plus options for their AFC 2.0 project. This contract will deliver to Boston, a next-generation payment system to join the ranks of world-class Cubic Systems in Chicago and London. This win represents a significant addition to our portfolio of fare collection solutions to the largest transit agencies in the world. We will now finalize an early works agreement with the MBTA to allow the project to commence while we work with the project stakeholders towards a financial close of the P3 contract in Q1 of calendar year 2018. This award together with our recent awards in New York and London is a further endorsement of our strategy of CTS and the investments we've been making in that business segment. Now let's proceed to the Q&A session.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed.

[Jim Ricchiuti:]

Hi. Good afternoon. Congratulations on all the contract wins, particularly the news out of Boston today.

[Brad Feldmann:]

Jim, thanks so much.

[Jim Ricchiuti:]

And just along those lines, I’m just wondering is the guidance that you’re giving for fiscal '18, the adjusted EBITDA guidance, does that take into account your expectations on the Boston contract? I’m trying to get an understanding as to what the potential impact might be on that in terms of your guidance?

[Anshooman Aga:]

Jim, this is Anshooman. So Boston is a multiple element arrangement contract with contingent elements, so we won't be able to recognize revenue in fiscal year '18 based on current U.S GAAP. However, starting fiscal '19 with the new 606 adaptation, we will be able to recognize percentage of completion revenue. So next year we will have no revenues associated with Boston even though we will be working on it.

[Jim Ricchiuti:]

And just with respect to any additional expense that we need to be aware of that might be associated with this or for that matter I'd like to go back to New York for a second as well.

[Anshooman Aga:]

No, so the cost for working on the project will be capitalized on the balance sheet. So there will be no P&L impact for this.

[Jim Ricchiuti:]

And just looking at New York, you have talked in the past about the scope of this, and it’s obviously expanded to include the Light Rail and Long Island Railroad and Metro North, but I wonder, is the -- are your expectations both short-term and intermediate-term in terms of the profitability of this contract? Is this essentially in line or is there any change versus where you -- what your expectations were say going back to the early part of summer?

[Anshooman Aga:]

No. The contract margins are in line with our expectations. We obviously look at market-based pricing, but also look at Goal 2020 targets and we remain committed as a business to achieving our Goal 2020 target.

[Jim Ricchiuti:]

Okay. And then one final question, if I may, and I’ll will jump back in the queue. Brad, I wonder if you could just talk a little bit about – you’ve had some good wins on the defense side, but just in general, as you’re thinking about the defense business, the pipeline of activity that you see looking at fiscal '18 last year, obviously there were some things that shifted around. And I’m just trying to get a sense as to how you might gauge the risk for things moving around again this year or if you feel pretty good about the funnel of activity that you're seeing? Thanks.

[Brad Feldmann:]

Jim, in general, we feel pretty good. As you know, we’re under continuing resolution. I think conventional wisdom in Washington is there will be another continuing resolution through the end of December and then we will have a budget. As you know, it's hard to predict that, but if that happens, Jim, I think we're in very, very good shape for growth in our defense business as well.

[Jim Ricchiuti:]

Okay. Thanks a lot.

[Operator:]

Thank you. Our next question comes from the line of Ken Herbert with Canaccord Genuity. Please proceed.

[Ken Herbert:]

Hi. Good afternoon and let me pass my congratulations on as well.

[Brad Feldmann:]

Ken, thanks so much.

[Ken Herbert:]

Hey, Brad or Anshooman, I just wanted to see can you just specifically say -- I can appreciate the bill curve on New York, but what does the 2018 guidance include either from a revenue and EBITDA standpoint within CTS from the New York contract?

[Anshooman Aga:]

Ken, we don't give specific guidance on the project, but you could expect '18 as the lower end with the design engineering work being done and significant ramp in revenue in fiscal '19 as production starts, and we start delivering some of the hardware.

[Ken Herbert:]

Okay. Okay that's helpful. And considering the accounting, does the margin change on that contract as it ramps or is it a steady margin under current assumptions to the contract?

[Anshooman Aga:]

So it’s a steady margin through the design build part of the contract for New York and then Boston in fiscal '19. When the 606 revenue guidance change, we will be able to recognize POC revenue on that contract as it would be any other contract.

[Ken Herbert:]

Okay, great. And as I look just trying to understand the bridge on adjusted EBITDA from '17 to '18 and it looks like ERP is about maybe $8 million to $9 million of a tailwind from '17 to '18. How -- when you look at maybe within the other operating segments, specifically defense systems or CTS, can you -- I know you don't give guidance by segment, but can you talk a little bit about sort of where we might see some of the more improvements in '18 in terms of EBITDA and then maybe specifically some more insight on T2C2 and probability of -- or timing of that contract and how that might impact fiscal '18.

[Anshooman Aga:]

So to taking our reporting segments, basically all reporting segments are going to improve from an adjusted EBITDA perspective from '17 to '18. On the transportation, the fundamentals are really strong with the New York win. Even though Boston doesn't give us revenue next year, but it reinforces our strategy that -- and the investments we’ve made in the business. Moving to the defense side, the C4ISR business, we continue to see good growth in the business and with service with some of these recent wins that we’ve had that gives us some tailwind going into the market. I will let Brad answer the T2C2 full rate production question.

[Brad Feldmann:]

Yes. So Ken, as you know we've gotten through the operational test. There's a few things that we're improving to the kit and we expect going to full rate production decision in the winter. Following that, we expect the volume to increase and it's hard to know exactly how much the increase will be, but suffice it to say there will be tens of millions of dollars the first year and I think there will be further acceleration next year.

[Ken Herbert:]

Okay. That’s excellent. Thank you. And just finally, really nice margins within CTS in the fourth quarter. I think you specifically mentioned some -- maybe some project resolutions. Was any of the margin or what percentage of the margin in the quarter was maybe one-time versus just program and execution?

[Brad Feldmann:]

So, Ken, we shouldn’t be thinking of that as a one-time gain because what it was as we’re in service contracts, there is abatements and there is service bonuses, and that was as the customer was relatively new from a service perspective, there was lot of discussions around the contract as to the magnitude of these bonuses and abatements. And so while the cost was being recognized in prior periods, we have to defer the revenue till we actually got resolution on the contractual amounts and we recognize the revenue when we got that. So the costs had been recognized in prior periods.

[Ken Herbert:]

Okay, great. Thank you very much. Really nice quarter.

[Brad Feldmann:]

Thank you.

[Anshooman Aga:]

Thank you, Ken.

[Operator:]

Thank you. Our next question comes from the line of Mark Strouse with JP Morgan. Please proceed.

[Mark Strouse:]

Hi. Good evening. Thanks for taking our questions.

[Brad Feldmann:]

Hi, Mark.

[Mark Strouse:]

So just a quick -- hi. So just a quick clarification for us. You mentioned similar seasonality in fiscal '18 as it was in fiscal '17. If I remember right, the defense budget was passed in April, May timeframe of 2017. Would it be fair to assume that if we get our act together and the budget is passed sooner you could potentially come in closer to the high-end of your guidance range?

[Anshooman Aga:]

The multiple variables in our guidance range, obviously. So early budget would definitely help, but also it relates to how much of the discretionary spend the government puts in our C4ISR products business and that’s usually tail end loaded from a government spent perspective.

[Mark Strouse:]

Sure. Okay. Understood. And then has there been any change in expectations on your end of timing of the -- some of these opportunities on CTS with Brisbane or San Francisco in particular?

[Brad Feldmann:]

Yes, so we’re working on the RFP as we speak for Brisbane. The evaluation period will go many, many months. It is possible for us to get an award this fiscal year, but it's likely next. San Francisco has not yet come out with an RFP. I think it will be -- it will come out later this year and I think it will be a next year event as well.

[Mark Strouse:]

Okay. That’s helpful. Thank you very much.

[Operator:]

Thank you. [Operator Instructions] Thank you. Our next question comes from the line of Brian Ruttenbur with Drexel Hamilton. Please proceed.

[Brian Ruttenbur:]

Great. Thank you very much. Great quarter. So the first question I have is going to be beating the dead dog a little bit on the New York City MTA trying to understand the timing of that revenue flow. Obviously, revenue is going to be up ticking from this last fiscal year and we're all trying to figure out by how much. Is it a lot of front end work or should we be looking at the contract and doing it even divide over 10 years?

[Anshooman Aga:]

You shouldn’t be doing even divide over 10 years, Brian. So it's basically if you think of a bell curve, in the beginning you have the design and the engineering and revenue is going to be somewhat muted compared to when you go into production and start delivering some of the hardware. So really from a revenue perspective, fiscal '19 and '20 are going to be the higher revenue periods just in the shape of a bell curve.

[Brian Ruttenbur:]

Okay. So '19 and '20, '18 will be kind of a ramped year. Then …

[Anshooman Aga:]

That’s correct.

[Brian Ruttenbur:]

Okay, good. That gives me perspective. And then on the -- going along the same lines as some other analysts have been asking, the CR, you're making the assumption that we have a bill passed by January or what was the assumption? And I don’t know if I heard the conclusion to that, what’s the timing of the passage of the bill that you’ve put in your guidance?

[Brad Feldmann:]

Yes. This is Brad. It was early in the calendar year. So somewhere in that quarter was our assumption.

[Brian Ruttenbur:]

Okay. So as long as it happens by March, your assumptions then are safe in your opinion?

[Brad Feldmann:]

We are good.

[Brian Ruttenbur:]

Okay, good. And then just going on with the Boston award, congratulations. That’s a big one. The timing of …

[Brad Feldmann:]

Yes, Brian, we’re thrilled by that. Thank you so much.

[Brian Ruttenbur:]

Yes, that’s great. That -- that's happening much quicker than I had anticipated. But in terms of the timing, should we be looking at it as a similar bell curve to New York City MTA kind of small at the front end? I know we’re not going to see anything really until '19, but it's going to be small and then ramp, so we'll be seeing a pickup in '20 and '21, right?

[Brad Feldmann:]

Yes, it's a shorter duration contract, so you still see the bell curve. So '19 should be a good year from a revenue perspective on Boston. '18 could have -- had engineering if it weren't for the current U.S GAAP rules, which get changed or adjusted with the 606 implementation.

[Brian Ruttenbur:]

Okay. Is there anything else out on the horizon besides Brisbane and SFO or San Francisco that we should be looking for, because it looks like those two are going to be in fiscal '19 awards and not fiscal '18, is that what I heard?

[Brad Feldmann:]

I was somewhat conservative in that. It -- its possible Brisbane could happen in our FY18. It's always hard to know these exact procurement cycles, but I think it's fair to say '19 is fine for both of those. There's a whole refresh cycle for all the transportation properties. We're doing some very exciting things with mobile apps. As you know, we moved some portions of our enterprise to the cloud in Miami. There's a bunch of exciting sort of state of good repair opportunities in the near-term. Usually hard to predict the exact timing, but there'll be some substantial increase to our business. In defense, T2C2 will accelerate -- that full rate production decision will accelerate that greatly. We have a number of international opportunities in our defense systems business. So, we think there will be good organic growth going forward, even with no huge awards next year.

[Brian Ruttenbur:]

Okay. And then last question -- that was helpful. Your vision 2020, kind of looking out with all the awards happening, especially the big attraction that you’re getting on the Transportation side, can you -- on that I believe it's $2 billion in revenue that you have, do you see it shifting disproportionally to Transportation versus your other two segments …

[Brad Feldmann:]

No, not …

[Brian Ruttenbur:]

… as a percentage of the total revenue?

[Brad Feldmann:]

No, not at this point. Not at this point and of course the $2 billion assume some inorganic growth and as you know we don't discuss that until we're done with it. So it includes both organic and inorganic growth opportunities.

[Brian Ruttenbur:]

Great. Thank you very much. Great quarter.

[Brad Feldmann:]

Thank you so much.

[Anshooman Aga:]

Thanks, Brian.

[Operator:]

Thank you. This concludes our Q&A portion. I’d now like to hand the floor back over to management for closing remarks.

[Brad Feldmann:]

In closing, we remain optimistic about Cubic's future. Thank you very much for your support of our great company.

[Operator:]

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.